China’s ambitious campaign to consolidate its fragmented semiconductor industry into a few powerful state-backed players is faltering, as internal disagreements and market realities challenge Beijing’s top-down push to rival U.S. and European chip giants.
According to Financial Times reporting, the Chinese government earlier this year convened a group of domestic chip equipment manufacturers to explore a megamerger—part of a broader state-led strategy to streamline the country’s chipmaking supply chain. The discussions, spearheaded by the National Development and Reform Commission (NDRC), were intended to forge a semiconductor powerhouse capable of developing integrated technologies and reducing reliance on Western suppliers.
However, multiple people familiar with the matter told the Financial Times that talks have stalled due to disputes over ownership structures and valuation. “There were too many split interests,” said one source involved in the negotiations. “The prospective sellers don’t want to sell at a loss and the buyers don’t want to pay a premium.”
Despite these setbacks, deal activity in China’s chip sector has picked up. So far in 2025, there have been 26 announced semiconductor acquisitions, according to data from financial information provider Wind. The most prominent is the proposed merger between CPU designer Hygon and supercomputing firm Sugon. If the pace continues, the number of deals this year could rival the 45 reached in 2024, the highest since the pandemic.
Industry analysts say consolidation is essential to help Chinese fabs integrate equipment more efficiently and reduce dependence on U.S. players such as Applied Materials and Lam Research. “It is difficult to be very successful as a single-product company,” said Edison Lee, semiconductor analyst at Jefferies. “Fabs prefer to buy multiple machines from the same vendor.”
The government’s aim is to better concentrate capital and resources around firms deemed strategically important. “There has been a realisation that scattered investment doesn’t create the scale necessary to make the sector profitable,” said Lin Qingyuan, a semiconductor analyst at Bernstein.
However, some investors remain skeptical that consolidation alone can drive innovation. “A lot of the companies for sale have no defensible technology moat,” said a Shanghai-based chip investor. “It doesn’t mean it’s going to be a successful acquisition unless the partnership is bringing something strategic.”
The Financial Times reports that even promising deals are falling apart due to valuation disagreements. A March deal in which electronic design automation (EDA) leader Empyrean Technology planned to acquire rival Xpeedic was scrapped in July. Similarly, shoe manufacturer Zhejiang Aokang and textile machinery group Ningbo Cixing both withdrew from proposed chip acquisitions in recent months, citing pricing concerns.
Another major challenge is the consolidation of China’s foundry sector, which remains politically sensitive and deeply fragmented. Many local governments, which control the majority stake in these fabrication facilities, are reluctant to sell assets at a loss due to concerns over losing “national assets.” This resistance has created a glut of mature chip capacity and intense price competition.
“There is overlap, wasted talent, and scattered investment,” said one chip investor. “But no local government wants to be blamed for losing control of strategic infrastructure.”
Even as China continues investing in cutting-edge fabrication for smartphones and AI applications—such as 7nm node projects in Shenzhen and Shanghai—analysts warn that progress will remain limited unless Beijing can resolve the financial and political gridlock surrounding industry consolidation.
The NDRC did not respond to a request for comment by the Financial Times.
Beijing’s strategic push is taking place against the backdrop of tightening U.S. export controls designed to curb China’s technological progress. As a result, the success—or failure—of these consolidation efforts may prove critical in determining the future trajectory of China’s semiconductor ambitions.
