"If China starts to build a huge number of new fabs, we would have an industry where a majority of players would lose a lot of money," UMC Chairman Robert Tsao said.
Tsao said each major city in China had extremely aggressive plans to build at least 10 factories producing the silicon discs used to make semiconductors. "If they achieve their goals, there would be complete chaos," he said.
He was asked to pin down the possible threats from China after his speech at the Forbes Global CEO Conference here today.
Tsao's sentiments come at a time when the worldwide semiconductor industry is facing a lack of demand. As a result, of the more than 100 wafer plants in the world, 60 percent are doing nothing, he said.
"It is a very serious situation," Tsao added.
Supply gluts caused by a rapid expansion of fab capacity becomes a problem every time a nation launches a semiconductor manufacturing strategy, according to Morris Chang, chairman of Taiwan Semiconductor Manufacturing, UMC's chief rival. Japan's aggressive entry into semiconductors caused a glut in the 80s, as did the entry of Taiwan and Singapore in the 90s.
"The phenomenon is not surprising because we were on the same road before," he said in a speech in Taipei earlier this month.
Chang, among others, has suggested that Taiwanese companies should participate in the development of the industry in China to modulate the influx.
Apart from the global demand slump, the recent terrorist attacks in the United States have also taken a toll on semiconductor firms.
Analysts earlier said that Asian companies exporting semiconductor components to the United States have incurred huge losses from air cargo cancellations and delays after North American airports were closed following the attacks.
"It is estimated that the semiconductor companies in Asia have lost millions...over the past few days" as a result of the delays, IDC Asia Pacific's Soo Kyoum Kim said in an interview.
Later, Tsao told reporters that UMC's business was unaffected by the U.S. attacks. He did not elaborate.
When asked to comment on the impact of China's World Trade Organization entry, Tsao said: "It (our business) will be favorable. (It) removes a lot of restraints from both sides...cross-straits business will be much more active."
Staff writer Anand Menon reported from Singapore.