Will China succeed in its semiconductor strategy and, if so, when?

November 29, 2022

China has invested heavily in semiconductor research and development and production for more than 15 years. Fabless companies like HiSilicon, Unisoc and Maxscend have been great successes and are starting to be very significant. Manufacturing success has been more limited, even before the China/US trade war and the US government’s limits on selling technology and products to Chinese customers.

If you look at the mainstream semiconductor industry producing processors and memory, clearly China is behind. It has no access to leading edge manufacturing technology. 12nm lithographic nodes and below are not available in China for mass production, although some very limited production can be achieved at 7nm with deep ultraviolet lithographic technology. The expansion of China’s two memory manufacturers, Yangtze Memory Technologies Corp and Changxin Memory, has been blocked because they are unable to access equipment needed for their expansion. Likewise, not much is possible in logic manufacturing in the short term. Without access to key non-Chinese equipment makers, it will take years for China to develop its own equipment and supply chain to manufacture devices with lithographic nodes below 14nm. Multiple Chinese companies are dedicated to that, developing lithography, etch and deposition equipment, but will need years to reach the technology level needed for the most advanced nodes.

For the other type of devices, Chinese companies are pushing heavily to overcome their main challenges:

Power device and module manufacturers are increasing sales and production capacity at very high speed to satisfy the great needs of the car electrification and the electrification of the industries more broadly.
Compound semiconductors are also a major area of investment for power devices, radiofrequency modules and photonic devices. Chinese companies have entered the top 15 manufacturers worldwide in all of these fields.
Image sensors and advanced packaging have been also very strong fields for Chinese companies.
In several fields, like advanced substrates and electronic design automation there are almost no Chinese players of significant size. This could be a major issue for the future growth of the Chinese industry.

Two key questions are: Will China’s semiconductor industry be decoupled from the western semiconductor industry? And when might this happen? The answers are complex. One key thing to remember is that China has no quarterly targets, which US companies do. China has a lot of time and money and millions of skilled employees to succeed with, and this really matters.

Yole Group’s analyst teams follow Chinese semiconductor ecosystems, market trends and supply chain. We help understand what is at stake and the expected evolution. In its reports and publications, Yole’s teams help understand the Chinese supply chain, its strengths and weaknesses and the market’s development potential and opportunities.