China's Bid for Global Dominance in Polysilicon Market
China is intensifying its efforts to control the global polysilicon market, a critical component in semiconductor manufacturing, by flooding the industry with cheap, subsidized products. This strategic move aims to push foreign producers out of business and establish China's dominance, according to a recent report by the Washington D.C.-based think tank, the Information Technology and Innovation Foundation (ITIF).
China's Support Drive and Market Impact
The ITIF report warns that Beijing is providing substantial government backing to its polysilicon sector, enabling domestic companies to expand rapidly. This has already resulted in financial difficulties for some U.S. suppliers, with at least one filing for bankruptcy. If countermeasures aren't adopted, more firms could face similar fates.
Importance of Polysilicon in Semiconductor and Solar Industries
Polysilicon is the fundamental material used for producing wafers in nearly all semiconductor fabs worldwide. Its production depends heavily on the sale of solar-grade polysilicon, used in solar panels, which sustains the economy of scale necessary for manufacturing high-purity, semiconductor-grade polysilicon.
Chinese Market Expansion and Market Disruption
Chinese manufacturers—backed by Beijing’s financial support—have increased production of solar-grade polysilicon, dominating the global supply. This trend undermines the viability of polysilicon producers elsewhere, notably in the U.S., by flooding the market with low-cost, less-refined material. Similar concerns were voiced last year regarding China’s massive exports of cheap chips, which threaten to inundate markets with affordable semiconductors.
Overcapacity and Market Oversupply
Despite operating at a loss, Chinese companies have continued to grow, establishing facilities across Africa, India, and the Middle East. Beijing also restricts exports of polysilicon to the United States to protect its domestic industry. Currently, China controls roughly 89% of global solar-grade polysilicon production, with leading firms like Tongwei and GCL Technology based domestically.
Government Support and Market Glut
The Chinese government facilitates expansion by allowing domestic firms to sell below market prices, even at a loss, to increase market share. This has led to overcapacity within China, prompting discussions about creating a $7 billion fund to reduce capacity by about one-third. Bloomberg reported in December that China’s polysilicon capacity would reach approximately 3.23 million tons by the end of 2024—twice the projected demand for 2025.
Price Warfare and Industry Consequences
According to estimates by the US National Renewable Energy Laboratory, the typical market price for polysilicon is around $24 per kilogram. Yet, Chinese producers are selling at about $5 per kilogram, just below their production costs. This price war contributed to the shutdown and bankruptcy of Wolfspeed, a leading US silicon carbide producer, in June.
Risks to the US and Global Supply Chain
The ITIF warns that if China’s strategy remains unchecked, more companies in the U.S. and partner nations could be forced out of business, making the global semiconductor supply chain overly dependent on Chinese materials. The US Department of Commerce has initiated investigations into Chinese polysilicon imports, with recommendations suggesting bans on Chinese-origin materials and increased domestic production supported by federal programs like the CHIPS Act and the Defense Production Act.
The Need for US Intervention
Without swift government action, the US and allied industries risk reliance on China for key materials, potentially undermining the economic and national security gains made through recent legislation. Nonetheless, skepticism remains about the US’s stance on trade practices, given past political rhetoric and trade conflicts.