China Intensifies Domestic Chip Drive Amidst Tightening U.S. Export Controls

Beijing Rallies National Chip Industry

China is actively mobilizing its domestic semiconductor industry to counteract increasingly stringent U.S. export controls on high-end microchips and manufacturing equipment. This concerted effort underscores Beijing's strategic imperative to achieve technological self-sufficiency and reduce its reliance on foreign suppliers. The U.S. has implemented and progressively tightened export controls since 2018, with significant escalations in October 2022, 2023, and December 2024, specifically targeting China's access to advanced computing and semiconductor technology.

Major Investments Fuel Self-Sufficiency Push

In a clear demonstration of its commitment, China recently launched the third phase of its National Integrated Circuit Industry Investment Fund, commonly known as the 'Big Fund.' Established in May 2024, this fund has amassed a substantial 344 billion yuan (approximately $47.5 billion to $65.4 billion), making it the largest semiconductor investment vehicle to date. The fund's primary objective is to accelerate the development of China's indigenous chip industry, with a focus on strengthening domestic manufacturing, design, and materials sectors. This initiative is a central component of China's 14th Five-Year Plan (2021-2025), which designates semiconductors as a strategic priority aimed at fostering 'science and technology self-reliance' and 'secure and controllable supply chains.'

Key Players and Technological Breakthroughs

Chinese companies are making notable strides in chip development despite the export restrictions. Semiconductor Manufacturing International Corporation (SMIC), China's largest chipmaker, has been a key beneficiary of state support. In December 2025, SMIC reportedly achieved volume production on its 'N+3' 5nm-class node. This significant advancement was accomplished using Deep Ultraviolet (DUV) multi-patterning, circumventing the ban on advanced Extreme Ultraviolet (EUV) lithography machines. While this represents a major technical achievement, analysts note that SMIC's capabilities still lag behind global leaders like TSMC and Samsung Electronics in terms of scaling and yield rates.

Huawei, heavily impacted by U.S. sanctions since 2019, has emerged as a central figure in China's drive for an integrated domestic supply chain. The company's Ascend series AI processors, such as the Ascend 910C and 910D, are demonstrating competitive performance, particularly when deployed in clusters. Furthermore, Chinese scientists have reportedly developed a prototype EUV lithography machine in Shenzhen, completed in early 2025 and currently undergoing testing. This 'Manhattan Project'-style effort aims to enable independent production of advanced chips, with a target for working chip production by 2028, or more realistically, 2030.

Strategic Implications and Industry Response

The U.S. export controls, intended to curb China's technological advancement, have instead served as a 'rallying cry' for Beijing, intensifying its pursuit of tech self-sufficiency. Chinese industry groups have responded by advising local companies to avoid purchasing U.S. chips, citing concerns over their reliability and urging a shift towards domestic or non-U.S. alternatives. This strategic competition is reshaping the global semiconductor landscape, with China pouring upwards of $200 billion into its efforts to build a modern and self-reliant chip industry. While China's ambitious goal of 70% self-sufficiency by 2025 may not be fully realized, the significant investments and technological progress indicate a long-term commitment to securing its strategic autonomy in the semiconductor sector.