Semiconductors
Semiconductors are crucial to many of China’s strategic goals: digitalizing the economy, boosting high-tech exports such as electric vehicles (EVs) and solar panels, and developing modern weapons. With its state-led “Big Fund,” China has invested more than CNY 686 billion (EUR 87.5 billion) into the industry since 2014, in addition to local government support and private investment.
Indigenizing the semiconductor industry has gained urgency, as US sanctions and export controls have cut off access to advanced semiconductors critical for development in AI, military and other fields. Since the US sanctioned the telecoms giant Huawei in 2019, Huawei has quietly become the central force in the state’s effort to develop homegrown chips, alongside other companies.
China is a major producer of semiconductors using older manufacturing technology and is a leader in backend processes – chip assembling, testing, and packaging. But it lags in making advanced semiconductors and lacks the tools to manufacture them. US export controls have cut off access to critical foreign-made equipment.
Nevertheless, leading manufacturer SMIC has produced an advanced 7nm smartphone chip and a line of AI chips, both for Huawei. Taiwan’s TSMC, the world’s leading semiconductor contract manufacturer, first pioneered a 7nm process in 2018 (has since produced several rounds of further innovations), suggesting SMIC lags by roughly five years. However, China’s lack of access to Extreme Ultraviolet Lithography (EUV) machines, essential for making advanced semiconductors and exclusively produced by the Netherlands’ ASML, may hamper further progress.
Graphics dashboard
China could dominate legacy chip manufacturing in 2030
Currently China has the largest production capacity for legacy chips, which are older, established semiconductor designs. Chinese companies have already committed to a doubling in capacity by 2030 (compared to 2023 levels). European semiconductor companies will see increasing competition from China, where profits often take a backseat.
Big Fund investment directs most resources to IC manufacturing
The first two rounds of China’s Big Fund semiconductor investment fund were focused on costly IC manufacturing. The latest and largest round of 344 billion CNY (44 billion EUR), announced in May 2024, is expected to focus on AI chips and high-end equipment, where China urgently needs self-sufficiency in the face of US export controls.
China still depends on foreign semiconductor manufacturing equipment
Semiconductor fabs rely on many different types of machines. To fully indigenize production, China would need to produce all these machines. They are often not easily interchangeable. Even though Chinese firms currently have a market share of 11 percent in etching, their machines often cannot be used to replace foreign ones.
Semiconductors in China: Timeline of crucial events
Development
Policy/regulation
The US adds Huawei and its subsidiaries to the Entity List, restricting exports to them. This impacts Huawei's supply chain, with 33 of its 92 core suppliers based in the US.
Jan 2019
US applies Foreign Direct Product Rule to Huawei, blocking its technology access globally. Companies are barred from using US technology (mainly semiconductors) to supply Huawei.
May 2020
Top Chinese scientist suggests China use open-source RISC-V chip design architecture to overcome Western sanctions, and create an ecosystem around “RISC-X” in Belt and Road countries.
Nov 2020
US expands export controls on advanced semiconductors and manufacturing equipment, restricting tech specs of chips and including arms-embargoed countries.
Sep 2023
Huawei and SMIC release Kirin 9000S, a 7nm 5G chip for Huawei's latest high-end smart phone – even after US export controls blocked equipment considered necessary to make such chips.
Sep 2024
Ant Group says it has used domestic semiconductors, including from Alibaba and Huawei, to develop ways to train AI models that would cut costs by 20% compared to Nvidia’s.
Mar 2025
SMIC intends to acquire the outstanding shares of Semiconductor Manufacturing North China (Beijing) Corporation (SMNC), currently 51% owned by SMIC.
Sep 2025
SMIC tests a domestically produced immersion deep ultraviolet (DUV) photolithography machine that uses multiple patterning to produce 7nm chips without extreme ultraviolet (EUV) tools.
Sep 2025
A Dutch court rules there are "well-founded reasons to doubt" that the Chinese semiconductor company Wingtech is being managed correctly and, suspends Zhang Xuezheng as its CEO.
Oct 2025
Chinese AI startup Zhonghao Xinying launches Chana, a tensor processing unit (TPU), as a domestic alternative to Google’s TPU chips.
Dec 2025
Second tranche of Big Fund raises CNY 2 trillion (EUR 25.6 billion) to support Chinese semiconductor industry – beyond just fabs – to create an ecosystem for making semiconductors in China.
Oct 2019
COVID-19 severely disrupts supply chains for automotive chips. Car companies must cut output due to the shortage. Chinese chip companies evolve to meet the demand of its auto industry.
Jun 2020
US institutes country-wide semiconductor export controls, a major policy shift that restricts all of China’s access to "chokepoint" technologies, not just certain entities.
Oct 2022
Third phase of China Integrated Circuit Industry Investment Fund (Big Fund III) raises CNY 3.4 trillion (EUR 44.3 billion) from state-owned investors for semiconductor industry, the largest to date.
May 2024
China’s chip exports exceed CNY 1trn for the first time in 2024, reflecting growing production prowess. But imports are still twice as high as exports and are rising again after a dip in 2023.
Jan 2025
A subsidiary of Ant Group acquires a stake in memory chip developer InnoStar Semiconductor, as part of China’s efforts to support domestic suppliers. InnoStar raises its capital to CNY 50 m.
Sep 2025
The Dutch government seizes control of Dutch semiconductor manufacturer Nexperia, a subsidiary of China’s Wingtech, following concerns that it was transferring operations and IP to China.
Sep 2025
Shenzhen launches a CNY 5-bn fund to support semiconductor startups and strengthen local chip supply chains. The fund is part of Shenzhen's "20+8" industrial policy and has a 10-year duration.
Oct 2025
As China announces a one-year suspension of export controls on critical minerals, the US cuts tariffs on Chinese imports by 10% and delay certain restrictions on Chinese subsidiaries.
Nov 2025
The US approves exports of Nvidia’s H200 chip series to China under strict conditions. The chips could relieve China’s short-term compute shortages and accelerate domestic chip innovation.
Jan 2026
Recent developments
- Dutch Nexperia, a unit of China’s Wingtech, has obtained a USD 60-million loan from Dutch state-owned Invest International. The loan will support investments in back-end production sites to replace its China-based sites blocked since October when a court put Nexperia under Dutch government control due to alleged mismanagement. (Source (EN): Reuters, February 16, 2026)
- Chinese AI startup Zhonghao Xinying has launched a tensor processing unit (TPU) called Chana as a domestic alternative to Google’s increasingly popular TPU chips. TPUs are specialized chips for AI development that can do quick calculations with tensors, or multi-dimensional matrices. (Source (CN): EEF, December 1, 2025)
- Shenzhen launched a CNY 5-billion fund to support semiconductor startups and strengthen local chip supply chains. The 10-year fund is part of Shenzhen's "20+8" industrial policy. (Source (CN): STdaily, October 17, 2025)
- Japanese carmaker Honda said persistent automotive semiconductor shortages will force multiple vehicle plants in China and Japan to suspend or reduce production from late December 2025 to early January 2026. (Source (CN): EET, December 18, 2025)
- China-based semiconductor foundry SMIC started testing a domestically produced immersion deep ultraviolet (DUV) photolithography machine, developed by Shanghai-based startup Yuliangsheng (宇量昇). If successful, this would be an important step toward self-sufficiency in semiconductor manufacturing tools. But testing and volume production can often be years apart for semiconductor manufacturing. (Sources (CN): ESM China, September 17, 2025)
Publications
Topics
