Chinese Chipmakers Can't Advance As U.S. Bans High-Tech Exports

China's semiconductor industry has become a key target of the United States, which has imposed a slew of export restrictions targeting several parts of the country's chip sector supply chain as it bids to slow its rival's technological advancement, Josh Horwitz reported for Reuters.

Photo Insert: Semiconductor Manufacturing International Corp. (SMIC) is China's largest state-backed fab.

While Beijing has plowed vast sums of money into cultivating a domestic chip industry, its fabrication plants, known as fabs, still heavily rely on foreign-made equipment that they use to turn slabs of silicon into chips that power hardware.

Semiconductor Manufacturing International Corp. (SMIC), China's largest state-backed fab, makes chips that go into a range of products for the automotive sector, internet-of-things devices, and some smartphones.

It aims to rival Taiwan Semiconductor Manufacturing Co. Ltd., though it is dwarfed in technology and income. TSMC is the world's most valuable chipmaker and counts Apple Inc. and Nvidia Corp. among major clients.

Its government backing and ambition to make high-end chips caught the attention of the United States which put the firm on its Entity List in 2020. The placement effectively barred Dutch firm ASML Holding from providing critical Extreme Ultraviolet lithography machines to SMIC, scuttling that ambition.

To date, most of SMIC's sales are made using the outdated 45-nanometer process node and above.

Since late 2020, this specialization in older chips has proven a boon due to a global shortage of lower-end chips. Its global market share in the pure-play foundry sector remains in the single digits, and its sales and research-and-development expenditure remain well below those of TSMC.

The company shocked the industry in 2022 when researchers discovered it had produced a chip that appeared to share qualities with TSMC's 7-nanometer process node technology, even without ASML equipment. Experts disputed the long-term viability of its breakthrough.

SMIC has not responded to the findings. Hua Hong Semiconductor Ltd. is China's second-largest fab. It was founded in 1996 and specializes in making mature-node technology, generating most of its revenue from chips made at the 55-nanometer process node and above.

The firm has devoted fewer resources to producing advanced nodes than SMIC. It plans to conduct an additional public offering in 2023 and aims to build a new fab in the eastern city of Wuxi.

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