Has China hit the limits of chip self-reliance?

Undeterred by US export control measures, the Chinese government has continued to expand its capacity to fabricate semiconductor chips (or integrated circuits (ICs)). Given the wide application of ICs in the production of industrial products, consumer goods, military weapons and future technology, the Chinese government has often advocated technological self-reliance. Amid growing geopolitical rivalry with the US, taking control of key semiconductor technology is considered imperative.

Following US restrictions on exporting advanced chips to Chinese firms, China’s IC imports have visibly declined since 2022, according to data from the World Trade Organization (WTO). The drop in imports has been most acute from Taiwan, China’s largest source of chip imports. The data corroborates findings in TSMC’s financial statement, which showed that China’s share of its global net revenue fell to 7% in the first quarter of 2026, down from 17% in 2018. Recent reports also indicate that Taiwan is considering stricter export controls on artificial intelligence (AI) chip sales to China. 

China: dominant supplier of less advanced chips to East Asia

Beijing’s effort to double down on its domestic chip fabrication could have reduced its demand for chips from overseas countries. China’s National Bureau of Statistics reckons that its domestic IC production more than doubled between 2018 and 2023. The latest data shows a 36% growth in production in the first four months of 2026. 

The domestically made chips are not only for Chinese manufacturing firms at home but also for producers in other countries. Data from the WTO shows that China’s chip exports increased after the US started higher tariffs on Chinese goods in 2018 and implemented export prohibitions on advanced chip-making machines to China’s SMIC in 2020. China’s chip exports to East Asia have had the most significant growth. The chip exports to Southeast Asian countries and India surged by more than three times during 2015 and 2024, whereas those to Taiwan and South Korea more than doubled over the same period, according to China’s General Administration of Customs. 

The impact of the ban on advanced chip-making machines has been limited on China’s IC exports, as high-tech chips are not China’s main export items. China likely increased its exports of less advanced ICs to other Asian countries as the final assembly was shifted away from China to avoid the impact of the US higher levies on Chinese goods. In other words, the US policy that set higher tariffs on Chinese products has cemented China’s role as a key supplier of less advanced chips to the region. It is estimated that China could account for 42% of global chips made on mature 22-nm to 40-nm process nodes by 2028, up from 37% in 2026.

The gradual rise in the unit price of China’s chip exports implies progress in upgrading its semiconductor fabrication technology. Based on the author’s calculation of data derived from China’s General Administration of Customs, the per-unit price of China’s exported ICs was US$0.38 in 2015, rising to US$0.58 in 2025. This increase suggests some technological progress, though these domestically produced chips remain cheaper than imported ones, which were priced at US$0.72 in 2025.

China still reliant on foreign chips

The technological gap, as shown by the higher unit price of imported chips than exported ones, highlights China’s continued reliance on foreign chips. Although China’s IC imports have slowed in recent years, the country is still the largest global IC importer. This indicates that China’s demand for unrestricted foreign chips has remained relatively high compared to other countries, despite growing domestic production.

China’s deep integration in the regional production network explains its sturdy demand for chips from outside the country. Foreign chips with better quality are also vital for Chinese-branded consumer electronic goods (that require chips to function) to maintain their international competitiveness and reputation. 

Beijing’s steady progress in IC development raises the possibility of overcoming technological bottlenecks in the long run. Nonetheless, its limited access to key global semiconductor equipment suppliers will continue to constrain its ability to produce chips that are either cost-effective or sufficiently high in quality. 

Huge financial investment needed for China’s upgrade

In contrast, the current global semiconductor supply chain, which comprises Taiwan and South Korea specialising in manufacturing, the US in design, and Japan and Europe in providing equipment and tools, has proved the most efficient way of making chips. To realise its self-reliance goal, China will have to achieve production efficiency and innovation not only in fabricating ICs but also in designing and making semiconductor equipment and tools. This requires huge long-term financial commitments, which could be quite a burden to the current slowing economy.

Even with strong government support, the development of its legacy chip is not without challenges. Beijing’s dominant position in legacy chip production will likely attract scrutiny from Washington, making these products the potential target of future trade restrictions. In 2025, the US Trade Representative Office held a hearing on Chinese-made legacy semiconductors used in the production of traditional electronic appliances. 

A lighter touch spurs greater innovation

Despite the technological progress in chip fabrication, excessive government intervention is not the most effective way to upgrade the industries and modernise the economy. Instead, it could undermine other potentially productive sectors as companies only focus on pursuing industrial activities subsidised by the government. The overemphasis on semiconductors and other high technology development could also leave a large low-skilled labour force (around 300 million to 400 million) behind, thus creating another economic and social problem for the country.

On the global stage, China’s ambition to transform from a “technology chaser” to a global “technology leader” has drawn worldwide attention. Beyond challenging US technological dominance, China’s rapid climb up the technological ladder could disrupt the interests of other nations in the global supply chain, fuelling broader international conflict.

Overall, while technological advancement is central in driving China’s next stage of economic growth, a balance between economic modernisation, social equality and geopolitical relations is even more critical for the country’s sustainable development.

Related: Rewriting the rules: Huawei’s new gamble to break the US’s chip blockade | Tech for market: How China’s tech exports force a global compromise