Chinese competitors stand about five years behind global leaders in high-volume manufacturing of leading-edge logic semiconductor chips and continue to trail in memory chips and semiconductor manufacturing equipment, although Chinese firms have made inroads in semiconductor design and production of legacy semiconductor chips - ITIF Report
According to the Information Technology & Innovation Foundation (ITIF), semiconductors represent one of the world’s most important industries, the core technology that powers the modern digital world. Recognizing this vital role, China’s government has prioritized the sector, investing hundreds of billions of dollars to catalyze the development of an indigenous semiconductor ecosystem and to ideally cultivate globally competitive semiconductor firms across virtually all segments of the semiconductor value chain, from semiconductor design and fabrication to assembly, test, and packaging (ATP).
In 2021–2022, 55 percent of global semiconductor patent applications were Chinese in origin (and China’s number of applications doubled America’s) while Chinese entities surpassed U.S. and Japanese ones for semiconductor patents granted in 2022.
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Thus far, those efforts have met with uneven success. With regard to the fabrication of leading-edge logic semiconductor chips, China’s flagship competitor, the Semiconductor Manufacturing International Corporation (SMIC), likely stands about five years behind global leaders such as the Taiwan Semiconductor Manufacturing Company (TSMC). As G. Dan Hutcheson, vice chair of research firm TechInsights, explained, “Ten years ago, [Chinese companies] were two generations behind. Five years ago, they were two generations behind, and now they’re still two generations behind.”
Chinese competitors are even further behind with regard to semiconductor manufacturing equipment (SME), such as the lithography tools that make semiconductors: One commentator noted that Chinese firms might be as many as five generations behind in this field.4 As one analyst explained, “The best machinery a Chinese company can produce makes chips that are 28 nanometers wide; the industry’s cutting-edge equipment can make 2-nanometer chips.”
China’s intense efforts to develop a fully fledged, indigenous, “closed loop” semiconductor industry have spurred a great deal of ingenuity and innovation, but a “go-it-alone” strategy will be very difficult in such an extremely complex tech ecosystem.
That said, Chinese semiconductor firms appear to be catching up in certain pockets: for instance, industry analysts view the design attributes and features of Huawei’s Mate 60 Pro smartphone as within 18 to 24 months of competitors’ versions. China has also made inroads in the production of legacy semiconductors (those greater than 28 nanometers), although Chinese firms appear to be competing in this sector on a more price- than innovation-intensive basis. In total, China continues to lag behind global leaders in most facets of semiconductor design and fabrication, but its firms’ intellectual property (IP) and innovation capabilities are accelerating rapidly as China pursues an aggressive whole-of-society strategy in an intense state-directed effort to achieve domestic semiconductor self-sufficiency.
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