China's Chipmaker in the Middle of a Global Tech Rivalry

Strategic Insights -

China's Semiconductor Manufacturing International Corporation, or SMIC, is at the center of a crucial geopolitical tech battle, as it struggles to break through innovation barriers and keep pace with its global rivals. With the help of major investments from the Chinese government, SMIC has been working to advance its chip technology, but its efforts have been hindered by U.S. export controls and restrictions. Despite these challenges, SMIC is racing forward with a new A.I. chip for Huawei, which is expected to be released this year. However, experts say that SMIC's progress will likely be slowed by the limited access to advanced equipment and the constraints imposed by U.S. technology controls.

Key Takeaways:

  • SMIC has made significant progress in developing advanced chip technology, with features less than one-15,000th of the thickness of a sheet of paper, packing enough computing power to create advancements like artificial intelligence and 5G networks.
  • The company has been racing to develop a new A.I. chip for Huawei, which is expected to be released this year, despite the challenges posed by U.S. export controls and restrictions.
  • SMIC's ties with the Chinese government have grown closer over time, with major shareholders including state-owned companies such as China Information and Communication Technology Group and Datang Holdings.
  • The company has invested heavily in its factories, with over a dozen chip manufacturing facilities operating in China, and is planning or constructing at least 10 more.
  • SMIC has faced pushback from those who say that tougher limits on the company would damage the United States economically, since SMIC also works with American companies.
  • Analysts and U.S. chip executives have concluded that SMIC has repurposed less advanced equipment to make a more advanced chip, which can result in many faulty chips.
  • The U.S. has been drafting even tighter rules that would target some SMIC factories, and pushing Dutch and Japanese officials to stop supplying SMIC's most advanced fabs.
  • Experts argue that, as competitors like TSMC and Intel innovate, and as the United States and its allies ramp up their technology controls, China will be left further behind.

Statistics:

  • SMIC has shipped nearly four million wafers in the first half of the year, each of which can be split into hundreds or thousands of chips.
  • China's imports of chipmaking equipment in the first seven months of this year surged 53 percent from the same period in 2023.
  • U.S. officials have said that advanced chip technology is central not just to commercial businesses but also to military superiority, and have been fighting to keep it out of Chinese hands.
  • SMIC has spent $4.5 billion on capital expenditures in the first half of this year, more than it earned in revenue.
  • North American customers account for about a sixth of SMIC's revenue.
  • China's chip industry has attracted U.S. attention as a national security issue, with the Trump administration persuading the Netherlands to block a sale by the Dutch firm ASML to SMIC of its most advanced chipmaking machine.

Sources:

  • Ana Swanson, John Liu and Paul Mozur, "Efforts by the Beijing-backed Semiconductor Manufacturing International Corporation, or SMIC, to break through innovation barriers have landed it in a geopolitical tech battle."
  • Gina M. Raimondo, the commerce secretary, saying "We have protected, to a large extent, our most sophisticated technology from getting to China."
  • Liu Pengyu, a spokesman for the Chinese Embassy in the United States, saying "Sanctions and repression will not deter the development of China and Chinese enterprises."
  • Paul Triolo, a tech expert at Albright Stonebridge, saying "The fence has gotten higher, but we've decided to leave open the front, side and back gate."
  • Jimmy Goodrich, a senior adviser for technology analysis to the RAND Corporation, saying "The U.S. companies would say, accurately, if you tried to put SMIC out of business tomorrow, there would be collateral damage for U.S. companies."
  • Chris Miller, the author of "Chip War," a history of the industry, saying "Necessity breeds innovation."
  • Galen Zeng, a senior research manager at IDC, a market intelligence firm, estimating that SMIC would most likely lag other international chip giants by three to five years.
  • Dylan Patel, the chief analyst at SemiAnalysis, a research firm, estimating that SMIC could make 1.2 million A.I. chips for Huawei next year, double this year.