Bottom Line
- China has developed its semiconductor industry to build an independent chip supply chain and reduce foreign dependencies.
- Despite US sanctions and export restrictions, China has made significant strides in advanced chip technology.
- If China achieves semiconductor self-sufficiency, it could alter the global chip supply chain and raise geopolitical security concerns, especially in the Taiwan Strait.
On October 17, 2022, at the 20 th National Congress of the Communist Party of China, President Xi Jinping called for a nationwide effort to
“win the battle” in core technologies. The urgency was reflected in the
20 th Party Congress report , in which the word “technology” was mentioned fifty-five times compared to thirty-four times in the 19 th Party Congress report. This focus underscores the Chinese Communist Party’s determination to bolster its technology sector, with semiconductors being a focal point.
Semiconductors, or chips, are the backbone of the modern global economy as they are vital to telecommunications, defense, and industrial applications. In recent years, semiconductors have emerged as a critical battleground in the broader geopolitical contest between the People’s Republic of China (PRC) and the United States. In 2015, the PRC launched the “
Made in China 2025 ” initiative as the roadmap for technological self-reliance. The initiative aimed to transform China’s manufacturing sector into a high-tech leader. A key aspect of this industrial policy was to boost domestic chip production by 40 percent in 2020 and 70 percent in 2025, thereby reducing dependence on foreign technology.
China’s emergence as a major chip producer could disrupt the global chip supply chain, affecting export-dependent economies like the Republic of China (Taiwan), home to Taiwan Semiconductor Manufacturing Company (TSMC), one of the world’s largest and leading chip manufacturers alongside South Korea’s Samsung. TSMC produces
90 percent of the world’s most advanced chips, with the PRC relying on the Republic of China for
60 percent of chip imports. Achieving self-sufficiency in chip production would undermine Taiwan’s “
silicon shield, ” a status quo that deters China from forcefully taking over the island. According to a
research report from RAND, given the heavy concentration of global fabrication in Taiwan and the critical role of semiconductors across various sectors of the economy, economic vulnerability could grant the PRC an uneven advantage. Furthermore, semiconductors also play an important role in China’s
military-civil fusion strategy , a policy to transform the People’s Liberation Army into a world-class military with technological superiority. This strategic initiative has raised concerns in Washington, leading to a series of sanctions and export controls designed to restrain China’s technological and military advancements.
Export Controls on Critical Technologies
Before Xi Jinping’s speech in Beijing, the Biden administration unveiled a series of new
export controls on October 7, 2022, targeting artificial intelligence and chip technologies to China under a “
small yard, high fence ” approach. The aim was to restrict critical technologies that have significant military applications while maintaining normal economic exchanges. These controls included restrictions on chip design tools and semiconductor manufacturing equipment, as well as transactions involving companies on the entity list. This was not Washington’s first attempt to restrict China’s access to semiconductor technologies under national security interests. Between 2018 and 2020, the United States cut access off to Chinese state-owned entities like
Fujian Jinhua IC , and
ZTE , as well as the PRC’s national champion,
Huawei , from American chip suppliers.
The policy was
updated in 2023 to include American-produced chips from Nvidia and extreme ultraviolet lithography machines (EUVs). EUVs are an indispensable chip-making tool to fabricate smaller and more sophisticated chips, which are increasingly in demand for modern technologies like artificial intelligence, autonomous driving, and 5G networks. The computing power of a chip is determined by its size in nanometers, with smaller sizes indicating higher computing power. ASML, a Dutch-based semiconductor company and the sole provider of EUV technology, has faced
US government pressure to halt exports to China. Lithography machines, including EUV systems, are also subject to the
Wassenaar Arrangement , a multilateral export control agreement restricting the sale of items with dual military purposes. Since 2019, during the Trump administration, ASML has refrained from selling these machines to China, and without access to this technology, China’s semiconductor industry faces significant barriers to producing its own advanced chips.
