“Ten years ago, [Chinese semiconductor companies] were two generations behind. Five years ago, they were two generations behind, and now they’re still two generations behind,” G. Dan Hutcheson, vice chair of research firm TechInsights, said. Despite billions of dollars poured in, the “go-it-alone” strategy hasn’t yet played out for China as expected.
China is aiming for self-sufficiency in the strategically crucial and complex semiconductor industry. However, the efforts have met with uneven success thus far.
Despite hundreds of billions of dollars in commitments and some notable achievements and advancements, China remains behind global leaders overall, according to research by Stephen Ezell, vice president for global innovation policy at the Information Technology and Innovation Foundation (ITIF), an independent think tank.
“But if allied nations rest on their laurels, they risk seeing a significant diminution of their industries,” ITIF warned. “China is rapidly closing the gap across many facets of the semiconductor production process and is developing genuine IP and innovation capabilities across the board.”
China's strides can significantly damage well-established foreign semiconductor firms because they may lose sales in the country.
How does China compare in different subsectors?
China’s catch-up across different subsectors is uneven. It’s not far behind, “perhaps only by two years,” in designing logic chips, such as those used in mobile phones or AI applications.
China has made some of the most significant advancements in semiconductor patent applications. In 2021–2022, 55 percent of global semiconductor patent applications were Chinese, more than double that of American patents.
Having plenty of capital, “from 2010 to 2022, the number of semiconductor design firms in China increased nearly sixfold, from 582 to 3,243,” the report reads. “Still, Chinese design firms accounted for only 8 percent of global design revenue in 2022, with no Chinese firms among the top 25 global design firms.”
However, China likely trails more significantly in semiconductor manufacturing equipment (SME), memory chips, and assembly, test, and packing (ATP). Some estimates suggest that China’s lithography tools are five generations behind. While Chinese companies produce chips using the 28-nanometer tech process, cutting-edge equipment can make 2-nanometer chips.
Chinese developers attempt to be as innovative as possible with the technologies available to them. Huawei’s flagship smartphone, Mate 60Pro, is 18 to 24 months behind the competition despite being produced “with both hands tied behind their back.” According to researchers, Huawei produced a “really good chip” without having access to leading-edge EUV lithography equipment.
China’s leading Semiconductor Manufacturing International Corporation (SMIC) is currently developing its 5nm process, which is expected to be ready for 2025 or 2025. Even if SMIC and Huawei succeed at producing 5nm chips, they will remain well behind Samsung and TSMC.
In 2024, China is expected to add more chipmaking capacity on older mature nodes than the rest of the world combined.
In the highly competitive memory sector, China’s YMTC introduced “the first 200+ layer 3D NAND Flash” on the market, surpassing rivals like Samsung, SK Hynix, and Micron. In 2022, Apple considered using YMTC’s memory in Phones. This plan was halted due to the US blacklisting of YMTC.
China has prioritized becoming a global semiconductor leader since at least 2014, with subsidies reaching as high as $150 billion over the past decade. Despite these efforts, “by early 2023, a sense had emerged in Beijing that they weren’t paying the expected dividends.”
That prompted a strategic shift, increasing investments in “basic R&D in semiconductor physics as well as critical technologies such as light sources for advanced lithography.”
The report concludes that intense efforts to develop a “closed loop” semiconductor industry have spurred a great deal of ingenuity and innovation in China. Yet, the “go-it-alone” strategy faces difficulties in such an extremely complex ecosystem.
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