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
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
Recent developments
Tech progress
- Huawei’s AI CloudMatrix 384, a new dedicated server rack scale architecture utilizing 384 of its Ascend 910C GPUs, is garnering attention for its high performance. Compared with Nvidia’s GB200 NVL72 (with 72 Blackwell GPUs), it delivers twice the computing power but consumes four times the electricity. As China lacks access to the best chips, this architecture server offers an option that leans on its abundance of power. (Source (EN): SemiAnalysis, 16 April 16, 2025)
- Researchers from the Chinese Academy of Sciences have detailed Qimeng, an AI framework for automated hardware and software co-design. A key step toward self-sufficiency in electronic design automation (EDA) amid US export controls, the system demonstrated its capability by designing a 32-bit RISC-V CPU front-end in 5 hours. (Source (CN): Science and Technology Daily and arXiv, June 10, 2025)
Domestic dynamics
- The city of Beijing is offering subsidies for companies to purchase domestically produced GPUs, as part of its plan to expand computing infrastructure. Huawei’s Ascend series remains the industry leader, with Cambricon, Iluvatar, Biren, Moore Threads and Metax all developing their own solutions. (Source (CN): EET China, April 30, 2025)
- SiCarrier, a Shenzhen-based semiconductor manufacturing equipment company with close ties to Huawei, showed off its equipment at China International Semiconductor Exhibition (SEMICON China). The previously unknown state-invested company presented 13 different types of equipment and showcased once again the central role the Huawei-affiliated supply chain is playing in China. (Source (CN): Toutiao, March 27, 2025)
- Domestic smart phone maker Xiaomi re-entered the chip design business, announcing its first self-designed 3nm-class phone chip. Xiaomi had tried to design their own chips in the past, but abandoned the project. After the company revealed their own EV, this is another step towards becoming a conglomerate akin to Samsung and Huawei. (Source (CN): QQ, May 24, 2025)
Foreign involvement
- With China now at 39 percent of the global market for automotive semiconductors, foreign firms are increasing production to meet demand for localization. STMicroelectronics announced a collaboration with Hua Hong Semiconductor to produce 40nm microcontroller units (MCUs) in China by the end of 2025. Infineon has announced localization plans for its products including microcontrollers and power devices. (Source (CN): EE focus, April 11, 2025)
- Nvidia is developing a downgraded version of its H20 AI chip for the Chinese market, after the US expanded export restrictions to cover the chip in April. (Sources (EN): Tom’s Hardware, May 9, 2025, TechCrunch, April 15, 2025)
Semiconductors in China: Profiling the actors
Publications
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