Recently, the U.S. Economic and Security Review Commission released a report assessing China’s semiconductor capabilities.
The report points out that semiconductors, also known as integrated circuits or computer chips, are used for processing and storing digital information and are widely applied in various electronic products ranging from smartphones to fighter jets. Since the release of the “Made in China 2025” strategic plan, the urgency for China to master cutting-edge semiconductor technology has become increasingly prominent, as “computing power” (the total amount of digital information that a business or country can process) has become a key factor in the development of artificial intelligence. In addition to these advanced chips, the “Made in China 2025” strategic plan also aims to enhance China’s global competitiveness in the field of basic chips. Basic chips refer to semiconductors manufactured using a process node of 28 nanometers (nm) or larger, which are essential components of most modern electronic devices..
China has made uneven progress in achieving its domestic semiconductor market share goals and in acquiring the highly specialized equipment needed for semiconductor manufacturing, but its share of global basic chip production capacity is rapidly increasing. China failed to meet its goal of having half of the chips used in domestic industries sourced from local suppliers by 2020, and it is also lagging behind expectations in developing an advanced chip manufacturing industry by 2030.However, semiconductor analysts Dan Kim and John F. Woehrle point out that the targets set in the “Green Paper” are based on “highly questionable assumptions and overly optimistic growth forecasts,” and assume that “the current competitiveness level of China’s integrated circuit industry may not reflect the actual situation.”Therefore, China’s slow progress in achieving these ambitious “MIC2025” goals does not accurately reflect the improvement in its chip manufacturing capabilities, even though China has made significant progress in certain areas of the semiconductor industry. Chinese companies have now become important competitors in the basic semiconductor field—China’s market share in this area has grown from 19% in 2015 to 33% in 2023.
- Overall:Chinese chip manufacturers hold only a small share of the global value chain, with their value added accounting for only 11% of the global total as of 2022. However, since China’s development is primarily focused on lower value-added segments, such as assembly, testing, and packaging (ATP), the value-added metric alone does not fully reflect its role in the global supply chain. Furthermore, although by the end of 2025, only 30% of chips may come from domestic manufacturers, some analysts predict that China’s rapidly growing manufacturing capacity will enable it to achieve self-sufficiency in basic chips by 2030.
- Advanced Semiconductors:China lags behind other countries in the localization of 20-14 nm chip manufacturing equipment, with domestic equipment manufacturers only meeting 9.6% of domestic demand in 2023. Many industry analysts believe that China is at least two years behind in cutting-edge technology. So far, Chinese companies have still not been able to overcome the significant advantages held by established players in the chip manufacturing field, making it difficult for new entrants to keep pace with the rapid innovation of industry leaders.The export controls on chip manufacturing technology by the U.S. and its partner countries may further delay China’s efforts to cultivate an advanced chip manufacturing industry.
- Basic Semiconductors:China’s basic chip manufacturing industry is developing rapidly, although it has not yet reached its expected goals. In 2023, Chinese companies accounted for 33% of the global wafer capacity for basic node logic chips, up from 19% in 2015.Even after the “Made in China 2025” plan ends, this growth momentum continues. From 2015 to 2023, the growth rate of China’s mature node semiconductor capacity was more than four times that of global demand, and it is expected that within the next three to five years, Chinese chip manufacturers will account for nearly half of the new mature node capacity.These trends raise concerns that China may monopolize these low-value-added areas, which are critical for nearly all applications, from automotive to grid technology.
China’s partial successes have come at a significant economic cost but may hold greater strategic value. By 2024, government-led investments in China will exceed $150 billion, approximately three times the funding allocated in the U.S. “CHIPS and Science Act” to encourage semiconductor production.A large amount of national investment has propelled China’s leading foundry, SMIC, to surpass the U.S.-based GlobalFoundries in the first quarter of 2024, becoming the third-largest foundry in the world, accounting for 6% of global revenue (according to data from technology research firm Counterpoint).SMIC is currently second only to South Korea’s Samsung and the world-leading TSMC. The rapid growth of basic semiconductor manufacturing capacity may allow China to continue its usual strategy: after establishing capacity far exceeding global demand and lowering domestic prices, China will export the excess capacity abroad at low prices to defeat competitors and establish global dominance. This situation has already occurred in some markets, such as Taiwan’s Powerchip Technology Corporation announcing that it is transforming into new AI-related product lines due to competition from mainland Chinese chip manufacturers.Even if Chinese chip manufacturers face resistance or challenges in expanding into global markets, merely capturing the domestic market may weaken the competitiveness of foreign manufacturers, as China’s vast electronic manufacturing industry is one of the largest sources of demand for basic chips; in 2022, China accounted for over 30% of global semiconductor procurement, with U.S. companies holding over half of the market share in China.