China's chip market is expected to hit a cyclical peak growth this year, expanding 20 percent to $51.7 billion, before cooling down during the next two years.

Next year, growth is expected to slow to about 18 percent and then to 10 percent in 2009. By 2010, growth will accelerate again to 14 percent, according to a recent research note by iSuppli Corp.

Earlier this week, pricing pressure and an inventory overhang led Gartner Inc. to trim its global chip market growth predictions to 6.4 percent in 2007 and 8.2 percent in 2008.

During the past few years, China has outpaced global chip growth as the country has made up for lost time by rushing to open new foundries, woo IDMs and increase its system design expertise by getting OEMs and ODMs to set up shop here.

Growth is a common a theme in China, touching everything from chips and clothing to commodities and luxury goods. iSuppli noted that some observers worry that the Chinese tech industry and the overall economy may be entering a dangerous period of "unsustainable hyper-expansion." In other words, a bubble could be forming.

"There's concern over whether Chinese electronics OEMs will continue expanding their sales, whether buying power will continue to increase among consumers and whether exports will remain on the rise," said Byron Wu, director and principal analyst of China Research for iSuppli. "At the macro level, there's increasing concern that the overheating economy could bring a disastrous bubble that could derail China's stock and real estate markets."

However, Wu believes the chip industry here will probably survive any such disruptions. After hot growth in 2004, when the industry expanded nearly 40 percent, more sustainable average growth rates have prevailed, ranging from 10 percent to 20 percent, he said.