China is quietly reducing its reliance on foreign chip technology

From consumer gadgets to cars, China has shown a knack for producing cutting-edge technology. Yet the semiconductors that power the digital economy have proved trickier to master. That has been the source of much anxiety among its political and business elites in recent years. America’s decision in 2022 to halt exports to the country of its whizziest chips and chipmaking tools brought into stark relief the chokehold of China’s geopolitical rivals over the industry. In December last year China’s imports of the lithography machines used to imprint circuits onto silicon wafers surged by 450%, year on year, as local chipmakers raced to buy advanced kit from ASML, the Dutch market leader, before export restrictions by the Netherlands came into effect in January. It has also been hoovering up semiconductor equipment from Japan (see next article).

Although the Chinese government has been splashing subsidies on its domestic chip industry for many years, mounting concern over the trade restrictions being imposed by America and its allies have led it to double down on the effort. In 2022 China’s government ramped up a national drive often referred to as the “Information Innovation” project, or xinchuang, that aims to replace foreign suppliers of, among other things, semiconductor technology. What’s more, whereas the state once pushed reluctant chipmakers to co-operate with local suppliers, their investors and boards now demand it as a form of insurance against trade wars. As a result, China’s semiconductor supply chain is steadily deepening. But can it ever match that of its rivals?