China's Semiconductor Industry Adapts to US Pressure
China's domestic semiconductor industry is responding to intensified U.S. export controls by increasing indigenous R&D and localizing supply chains. Chinese firms are reportedly shifting resources to mature process nodes and exploring alternative chip architectures. The dynamic is impacting international standards bodies as export controls risk fragmenting technical participation.
- To accelerate self-sufficiency, Beijing has established the third phase of the National Integrated Circuit Industry Investment Fund with $47.5 billion in capital. This new phase will likely focus on high-value products like High Bandwidth Memory (HBM) and advanced DRAM, in addition to continuing support for manufacturing equipment and materials. - China has mandated that domestic companies must source at least 50% of their chips from Chinese manufacturers, a move designed to rapidly boost domestic demand and reduce reliance on foreign suppliers. Similarly, new chip fabrication facilities are now required to demonstrate that at least half of their equipment is locally sourced. - Semiconductor Manufacturing International Corporation (SMIC) is advancing its 7nm and 5nm process nodes, despite lacking access to the latest EUV lithography machines. The company is expected to produce 30% of Huawei's Ascend 910B AI chips by the end of 2025 and is targeting mass production of 5nm chips in 2025, though costs may be 50% higher than those from industry leader TSMC. - In response to restrictions on foreign GPU imports, China's Cyberspace Administration instructed major tech firms like Alibaba and Tencent to stop purchasing certain Nvidia chips in September 2025. This is part of a broader strategy to promote domestic champions like Huawei, SMIC, and Cambricon in the GPU market. - There is a significant push into the open-source RISC-V architecture as an alternative to foreign-controlled instruction sets. Beijing's Yizhuang AI Zone has committed approximately $11 billion to develop an AI infrastructure free of Nvidia technology by 2025, with a focus on RISC-V. - China is also using its dominance in critical minerals as leverage; in April and October 2025, it expanded export controls on rare earth materials crucial for semiconductor manufacturing, directly responding to U.S. sanctions. However, a temporary one-year suspension of some of these controls was agreed to in a November 2025 bilateral trade discussion. - The focus on mature process nodes (28nm and above) is a key part of the strategy, with Chinese foundries expected to drive most of the global growth in this area in 2025. By 2030, China could account for over 38% of the world's mature-node chip production. - To overcome lithography limitations, Huawei and SMIC are reportedly developing a domestic laser-induced discharge plasma (LDP) lithography system, with trial production potentially starting in the latter half of 2025 and mass production by 2026. This could provide an alternative to ASML's EUV monopoly for advanced chip manufacturing.
