China Accelerates Semiconductor Industry Amid Sanctions
China's semiconductor industry is accelerating development in response to global export controls, fueled by record investments and strategic pushback. Reports suggest that rising domestic yields at manufacturers like SMIC indicate the country's AI hardware and sovereign compute strategies are gaining speed.
- China's state-led investment in the semiconductor industry since 2014 is estimated to have exceeded $150 billion. This includes three phases of the National Integrated Circuit Industry Investment Fund, also known as the "Big Fund," with the most recent phase raising $48 billion. - Huawei has become a central integrator for China's semiconductor supply chain, moving beyond designing chips to developing electronic design automation (EDA) software and investing in critical areas like lithography. The company is reportedly building a large R&D center in Shanghai for chip design and equipment development and has hired hundreds of engineers with experience at global firms like TSMC and Intel. - SMIC's 7nm process, used in Huawei's Mate 60 Pro, was developed without access to the most advanced extreme ultraviolet (EUV) lithography machines due to export controls. This forces the use of older deep ultraviolet (DUV) equipment, which can lead to challenges in production yield and cost-effectiveness compared to global competitors like TSMC. - The share of domestically produced semiconductor equipment used in China reached 35% in 2025, exceeding the government's target. Chinese firms like Naura Technology Group and Advanced Micro-Fabrication Equipment have made significant progress in etching and deposition tools, though critical gaps remain in lithography and metrology. - The upcoming 15th Five-Year Plan (2026-2030) is expected to prioritize breakthroughs in lithography, expansion of memory production for companies like YMTC and CXMT, and the development of High Bandwidth Memory (HBM). This follows the 14th Five-Year Plan which designated semiconductors a strategic priority to achieve greater self-reliance. - U.S. export controls specifically target equipment for logic chips at 16nm/14nm and below, DRAM memory at 18nm or less, and NAND flash with 128 layers or more. These rules also restrict U.S. persons from supporting the development or production at advanced Chinese fabs, leading to a withdrawal of American executives and engineers from Chinese semiconductor companies.
