In recent years, the landscape of the semiconductor industry in China has evolved rapidly, reflecting a broader trend towards self-reliance and increased domestic production capabilitiesThe gradual maturation of the industrial ecosystem has bolstered China’s ability to develop its own semiconductor technology and reduce dependency on foreign imports.

According to statistics released by the General Administration of Customs, China imported a staggering 479.5 billion integrated circuits in 2023, a decline of 10.8% from the previous yearThe decrease in import value was even more pronounced, falling by 15.4% to $349.4 billionMeanwhile, the National Bureau of Statistics reported that domestic production of integrated circuits reached 351.4 billion pieces in 2023, representing a 6.9% year-on-year growthThese figures highlight a crucial shift in the industry: amidst a global downturn in the semiconductor market, Chinese companies are making concerted efforts to enhance the volume of locally produced chips.

The impetus behind this strategic pivot can be attributed to the restrictions imposed by the United States on Chinese semiconductor firms over the past few years

Advertisements

In response to escalating geopolitical tensions and a push for supply chain security, domestic manufacturers have doubled down on building up their internal capabilitiesZhang Guobin, CEO of the Electronic Innovation Network, noted that the strict measures imposed by Western countries, particularly the U.S., have invigorated China’s resolve to establish a comprehensive and autonomous semiconductor supply chain.

With the proliferation of restrictions, thousands of local companies have begun to address the shortcomings in the supply chain across various segments such as manufacturing, equipment, materials, Electronic Design Automation (EDA) tools, intellectual property (IP), and packaging and testingBreakthroughs have been noted in several areas, including the domestic production of photolithography adhesives and advancements in cleaning, etching, and other critical equipment.

Artificial Intelligence (AI) chips, recognized as catalysts for the next wave of technological revolution and industrial transformation, have garnered significant attention recently

Advertisements

Nvidia, a leader in the AI chip sector, recently filed a document with the U.SSecurities and Exchange Commission that identified Huawei as a major competitor across multiple categoriesThe emergence of local players in this field has raised stakes in an increasingly competitive arena.

For domestic AI chip manufacturers, the primary challenge remains transitioning to a fully Chinese supply chain—an endeavor fraught with hurdles such as a lack of necessary intellectual property and toolchains, and concerns surrounding the production capacity and yield at local foundriesAn anonymous research and development expert from a domestic AI chip company shared insights into the complexities faced by companies striving for independence.

Amid this endeavor, significant advancements have been made in specific sectorsIn the realm of EDA tools, progress has been notableZhang Guobin highlighted that the domestic EDA industry has achieved substantial breakthroughs, with new companies emerging and offering competitive products

Advertisements

EDA refers to the suite of software used in semiconductor design, manufacturing, and testing, encompassing a range of technologies critical to the successful creation of chips.

EDA software engages multiple facets of chip design, which makes it essential yet challenging for China to develop homegrown solutionsA firm named Shanghai Hejian Industrial Software Group recently reported on the three phases that local EDA companies have experienced: from inception to meeting international product performance standards, and finally to creating an ecosystem of industrial synergy.

In 2023, a collaboration was announced between Hejian Industrial Software and Beijing Huada Jiutian to develop a joint solution for mixed-signal design and simulation within EDAThis partnership was particularly noteworthy as it marked the first time domestic EDA companies collaborated in this capacity, contrasting with past attempts that typically relied on partnerships with foreign EDA platforms.

The launch of Huawei’s Mate 60 series marked a key milestone in the quest for advanced and self-sufficient semiconductor technology, featuring the return of its Kirin 9000 chip, which underlines a capacity to produce advanced process chips without being subject to U.S

• China-U.S. Economic Cycle Repositioning
• Profitability Starts with Loss Prevention
• Storage Market Recovers: HBM Gains Popularity
• AI Integration Reshapes Financial IT Services
• Power Battery Recycling Industry Set for Billion-Dollar Market

export controlsRenowned semiconductor industry analyst Dylan Patel has suggested that the Kirin 9000 is comparable to Qualcomm's best baseband chips, challenging perceptions of U.Ssemiconductor dominance.

Moreover, breakthroughs arise from the IP segment as well, where domestic companies have developed advanced computational interface IP and GPU IP that are now localizedLeading companies in packaging and testing, such as Changjiang Electronics Technology and Huatian Technology, have also displayed remarkable capabilities in modern chip packaging.

One cannot overlook China’s steps towards establishing itself in semiconductor standards formulationAccording to Zhang, China's self-developed NearLink technology has already gained endorsement from multiple hundred enterprises and is being promoted vigorouslyAdditionally, domestic microcontroller units are increasingly prominent in the mid to low-end markets while transitioning towards high-end applications.

The surge in domestic semiconductor demand has evidently resulted in positive performance indicators for numerous companies within the industry

High Chen, a representative from an EDA company, confirmed that clients seeking domestically produced products, particularly from sectors like high-performance computing and telecommunications, have shown robust support in testing and iterative processes.

Despite the dominance of international equipment makers in the domestic semiconductor device market, several Chinese manufacturers are beginning to capture market shareReports from prominent firms reveal a trend of increasing sales orders and quality recognition, translating into growing revenuesThe company Shengmei Shanghai (688082.SH) reported revenue growth of 35.34% in 2023, showcasing the evolving capabilities and market acceptance of local companies.

Specialized semiconductor manufacturer Zhongwei Company (688012.SH) also reported an impressive increase of 32.15% in revenue, benefitting from a diversified product lineup and rapid technological upgrades

With a growing clientele and expanding market presence, domestic semiconductor equipment firms are revealing their potential in building a self-sufficient semiconductor ecosystem.

The shift toward self-reliance in semiconductor manufacturing is reflective of broader ambitions for innovation and sovereignty in this crucial industryZhang noted, leveraging domestic semiconductor capabilities in conjunction with local OEMs could foster unprecedented innovations akin to those seen with technologies such as the Huawei Mate 60.

Looking ahead, there remains a pressing need for continual innovationThe recent explosion of interest in AI, spurred by advancements in cloud computing and AI models, underscores the necessity for advanced chips that can handle significant computational loadsThese high-performance chips are essential to maintain competitiveness in the global AI race.

Nonetheless, domestic AI firms still face an uphill battle

“We must migrate our operations to domestic supply chains,” stated the anonymous AI chip development expertDespite a challenging environment impacted by ongoing U.Ssanctions, many Chinese AI chip designers remain resolute in their efforts to innovate and offer competitive products tailored to local market needs.

As large domestic clients begin to explore solutions such as Huawei’s Ascend 910B AI chip—which reportedly matches Nvidia’s A100 chip capabilities—the industry remains cautiously optimisticNevertheless, industry representatives anticipate that tightened U.Ssanctions on AI products may be forthcoming.

To thrive, domestic enterprises will require enhanced R&D capabilities, increased collaboration with academic and research institutions, and supportive government policies that provide necessary resources and talentIn transforming challenges into opportunities, the Chinese semiconductor industry can exploit its vulnerabilities to shape a resilient future.

While significant strides have been made in recent years, experts like Zhang Guobin emphasize that the journey from foundational breakthroughs to attaining global competitiveness is ongoing