As geopolitical tensions rise and supply chain disruptions remain fresh in policymakers’ minds, Asian economies are embarking on an unprecedented wave of semiconductor investment.
The semiconductor industry sits at the heart of the modern digital economy. From artificial intelligence and electric vehicles to defence systems and smartphones, microchips are the silent infrastructure powering almost every technological advancement of the twenty-first century. Yet the global production of these essential components remains remarkably concentrated. Over the past decade, East Asia has emerged as the dominant manufacturing hub for semiconductors, creating both economic opportunity and strategic vulnerability.
As geopolitical tensions rise and supply chain disruptions remain fresh in policymakers’ minds, Asian economies are embarking on an unprecedented wave of semiconductor investment. The critical question now confronting industry leaders and governments alike is whether this regional investment race can genuinely reduce the global concentration of chip manufacturing, or whether it will simply reinforce Asia’s central role in the semiconductor ecosystem.
The scale of concentration within the semiconductor supply chain is striking. Taiwan alone produces a substantial share of the world’s chips and an overwhelming majority of the most advanced processors used in high-performance computing and artificial intelligence. By some estimates, Taiwan accounts for roughly 92 per cent of global advanced semiconductor manufacturing capacity below the 10-nanometre threshold, while the broader Asia-Pacific region holds more than four-fifths of global fabrication capacity.
This dominance is reinforced by the prominence of a handful of industry leaders. The Taiwanese foundry giant TSMC, for example, commands more than 60 per cent of the global contract manufacturing market, far outpacing competitors in both scale and technological sophistication.
Such concentration has long been regarded as efficient from a purely economic perspective. Semiconductor manufacturing requires enormous capital expenditure, highly specialised labour, and an ecosystem of suppliers that has taken decades to cultivate. However, the global chip shortages that followed the COVID-19 pandemic revealed how fragile this model could be.
Supply disruptions in one region rapidly cascaded across industries worldwide, halting automobile production lines and delaying consumer electronics shipments. Governments in both Asia and the West consequently began to reassess the risks associated with highly centralised semiconductor supply chains.
Within Asia itself, this reassessment has triggered an investment surge. China, South Korea, Taiwan, Japan and India are all deploying industrial policy tools, subsidies and public-private partnerships to strengthen domestic semiconductor capabilities. Industry forecasts suggest that global spending on semiconductor manufacturing equipment could approach 400 billion dollars between 2025 and 2027, with China, South Korea and Taiwan leading the charge. The rationale behind this spending spree varies across countries, yet a common theme emerges: technological sovereignty.
China’s strategy is perhaps the most explicit example of semiconductor self-sufficiency as a national priority. Faced with export restrictions on advanced manufacturing equipment and chip technologies, Beijing has channelled billions into domestic fabrication plants and research initiatives.
While Chinese firms remain behind global leaders in advanced process nodes, they are rapidly expanding capacity in mature technologies used in automobiles, industrial machinery and consumer devices. This focus reflects a pragmatic calculation: even without the most advanced chips, a strong domestic supply base can reduce vulnerability to foreign technology controls.
South Korea, meanwhile, is doubling down on its leadership in memory chips and next-generation semiconductor clusters. The country’s semiconductor exports already exceed 120 billion dollars annually, accounting for a substantial share of global trade in memory technologies such as DRAM and NAND.
With government support, Korean firms are planning massive fabrication complexes designed to consolidate research, design and manufacturing in a single ecosystem. These clusters aim not only to maintain Korea’s competitive edge but also to attract upstream suppliers and downstream technology companies.
Japan, once a dominant force in the global semiconductor industry, is also staging a determined revival. Having seen its global market share decline sharply since the 1980s, Tokyo has launched an ambitious strategy to rebuild domestic manufacturing capacity and advanced chip research.
The government has set targets to expand the value of domestically produced semiconductors dramatically by the coming decades, linking the effort to broader economic security and artificial intelligence development goals. Japanese companies already play a critical role in the semiconductor supply chain, supplying around 28 per cent of global semiconductor materials and maintaining strong positions in specialised equipment and chemicals.
India represents another emerging contender in the Asian semiconductor landscape. Although the country currently imports the vast majority of its chips, New Delhi has launched incentive programmes worth billions of dollars to attract global fabrication plants and packaging facilities. The motivation is clear: India’s domestic semiconductor demand is expanding rapidly alongside its growing electronics manufacturing sector. Establishing even a modest domestic fabrication base could transform the country into a strategic node within the global semiconductor supply chain.
Despite this wave of investment, the question remains whether Asia’s semiconductor race will genuinely reduce global concentration or merely redistribute capacity within the region. On the one hand, new fabrication plants across Asia could diversify production away from a handful of locations, particularly Taiwan.
Even incremental shifts in capacity could enhance supply chain resilience. For example, Southeast Asia is increasingly specialising in assembly, testing and packaging operations, with countries such as Malaysia and Vietnam gaining significant shares of the global backend semiconductor market. These developments suggest that a more distributed regional ecosystem may gradually emerge.
On the other hand, the structural realities of semiconductor manufacturing may limit the extent of diversification. Advanced chip fabrication requires not only massive capital investment but also access to specialised equipment, materials and engineering expertise that remain concentrated in a small number of countries.
The most sophisticated lithography machines, for instance, are produced exclusively by a single European supplier, while several critical materials and chemical processes are dominated by Japanese manufacturers. Even as Asian countries build new fabrication facilities, they remain deeply interconnected with global technology providers.
Moreover, the economics of scale continue to favour established leaders. The cost of constructing an advanced semiconductor fabrication plant can exceed 25 billion dollars, and the learning curve associated with advanced manufacturing processes is steep. As a result, industry incumbents with decades of operational experience retain a formidable advantage. This dynamic helps explain why Taiwan and South Korea continue to dominate the most advanced segments of the market despite growing competition.
