For over a decade, Beijing has treated semiconductor independence not just as an economic goal but as a matter of national survival. This drive has reshaped global supply chains and poured hundreds of billions of dollars into a domestic ecosystem designed to bypass Western technology controls. While the scale of this effort is unprecedented, the current landscape suggests that financial might alone may not be enough to overcome the physical and geopolitical barriers standing in the way of true technological parity. The following analysis explores the progress made and the significant hurdles that remain.
The Massive Scale of State Led Investment
China has utilized a centralized approach to build its industry, primarily through the National Integrated Circuit Industry Investment Fund, often called the Big Fund. According to data from the Center for Strategic and International Studies, this fund launched its third phase in mid 2024 with roughly 49 billion dollars in backing. This capital has been instrumental in supporting national champions like SMIC and Huawei, allowing them to expand capacity despite being cut off from many global markets. By early 2026, the cumulative state investment into the sector has exceeded 300 billion dollars, highlighting the massive priority placed on silicon self reliance.
Milestones in Domestic Equipment Production
The results of this investment are becoming visible in the equipment sector, which was once a major vulnerability for Chinese fabs. Reports from the China Semiconductor Industry Association indicate that domestic equipment self sufficiency surged to 35 percent by the start of 2026, a 10 point jump from two years prior. Local firms such as Naura and AMEC have successfully developed etching and thin film deposition tools that are now being used in volume production. This progress is partly driven by new mandates requiring Chinese chipmakers to source at least 50 percent of their tools domestically to secure approval for fab expansions, a policy noted by Reuters as a decisive shift toward a closed loop ecosystem.
The Fragility of Advanced Node Manufacturing
Despite these gains, the industry faces a significant bottleneck at the cutting edge. SMIC has reportedly achieved volume production of 5 nanometer chips using an advanced N plus 3 node. However, because China is barred from importing extreme ultraviolet lithography machines from ASML, it must rely on older deep ultraviolet tools. This process requires complex multi patterning techniques which, according to TechInsights, lead to significantly lower yields and higher manufacturing costs. While China can produce these chips, doing so at a commercial scale remains a fragile and expensive endeavor compared to the more efficient methods used by TSMC or Samsung.
The Widening Performance Gap in AI
The implications are most stark in the field of artificial intelligence. Analysis from the Council on Foreign Relations suggests that the performance gap between American and Chinese AI chips is actually widening rather than closing. Currently, the most advanced chips from Nvidia are estimated to be five times more powerful than the best offerings from Huawei. Projections for 2027 suggest this gap could grow to 17 times as US firms move toward sub 2 nanometer processes. Without access to the most advanced manufacturing equipment, Chinese designers are forced to link clusters of lower performance chips together, a strategy that introduces systemic complexity and high energy costs.
A Final Note
China has successfully built a robust foundation for legacy and power semiconductors, yet its path to the absolute frontier of computing remains blocked by a combination of physical limitations and tightening export controls. While the country has achieved remarkable self-sufficiency in many areas, the rapidly moving target of AI hardware means that its current progress may still be insufficient to achieve global leadership.
