Domestic chipmakers thrive despite curbs

China is accelerating production of semiconductors, essential for the development of artificial intelligence, despite export controls imposed by the United States, recent industry reports said.

The advancement in semiconductor production comes amid criticism of US efforts to curtail China's AI capabilities by industry experts, who have termed the move as counterproductive, as China demonstrates remarkable adaptability in overcoming trade barriers.

A new report from New York-based investment bank Jefferies highlights how China has strategically reallocated semiconductor manufacturing equipment to domestic companies best suited to utilize it.

Leading this expansion is Semiconductor Manufacturing International Corporation, China's largest chipmaker. The company is actively expanding production in Shanghai, Shenzhen in Guangdong province, and Beijing, with production reaching nearly 50,000 microchip wafers per month this year, according to the report.

The Jefferies report suggested that Huawei could, in turn, leverage the expanded infrastructure to boost production of its latest AI processor — the Ascend 910C. The chip is central to Huawei's AI computing system CloudMatrix 384, which is being positioned as a domestic alternative to Nvidia's GB200 NVL72.

With access to high-end AI processors restricted, Huawei has adopted an approach of deploying greater numbers of processors compared to international competitors to achieve comparable AI performance levels.

Independent research from AI and semiconductor analysis firm SemiAnalysis has confirmed that Huawei's CloudMatrix 384 directly competes with Nvidia's GB200 NVL72, a rack-scale, high-performance AI solution.

Huawei's solution "in some metrics is more advanced than Nvidia's rack-scale solution", SemiAnalysis said in an April analysis.

"Huawei is pushing the limits of AI system performance", the company said, noting that the scale-up solution is "arguably a generation ahead of Nvidia and AMD's current products on the market".

To further offset US controls, Chinese companies are creatively adapting consumer-grade hardware for AI use. The Jefferies report said that personal gaming computers are being used as "AI inferencing workstations", reflecting the sector's resilience and innovation under constraints.

China's infrastructure advantage — ample electricity, low land costs and rapid expansion of cooling facilities — has added to the country's ability to scale semiconductor and AI development quickly and cost-effectively, the report added.

A separate report released last week by market intelligence firm Yole Group forecasts that by 2030, the Chinese mainland will account for 30 percent of global foundry capacity, establishing itself as the world's largest chip manufacturing hub.

In 2024, the Chinese mainland held 21 percent of foundry capacity while accounting for just 5 percent of global wafer demand, according to the latest foundry industry report.

By comparison, the US remains the world's largest wafer consumer, accounting for 57 percent of global demand, but controls only 10 per-cent of domestic foundry capacity.

Since the US initiated what industry observers term a "semiconductor-focused trade war", the Chinese mainland has accelerated efforts to construct a "self-sufficient domestic ecosystem", according to the Yole Group report.

While US companies dominate global chip design, they remain heavily reliant on foreign manufacturers. US-based players currently control roughly 20 percent of global foundry capacity, split evenly between domestic and overseas operations.

Despite continued efforts by the administrations of both US President Donald Trump and his predecessor Joe Biden to curtail China's access to advanced chips, leading US tech companies and policy experts have warned that the strategy is proving counterproductive and potentially accelerating Chinese innovation while incentivizing domestic companies to replace US suppliers.

Nvidia, which reported a financial impact of $5.5 billion due to export controls, has cautioned that such restrictions risk isolating US companies from global markets.

"Rather than slowing China's ascent, the US government is hastening it," said a report by the Information Technology and Innovation Foundation in May.

Huawei's original Ascend 910 chip was manufactured by Taiwan Semiconductor Manufacturing Company in 2019. After being cut off due to US sanctions, Huawei moved production to the Chinese mainland, releasing improved versions — the 910B in 2022 and the 910C this year — with the upcoming 910D in development.

Analysts expect these chips to perform on par with Nvidia H100 — a high-performance chip designed for AI applications — but at just 60 to 70 percent of the cost.

"Huawei isn't the only player that is helping China close the gap. China has firms innovating and competing across all layers of the chip ecosystem. Companies such as Biren Technology, MetaX, and Enflame are designing AI chips," said the ITIF report.

"Moreover, China is innovating on how to deploy less efficient chips more effectively," it said.

liazhu@chinadailyusa.com