When the United States placed Semiconductor Manufacturing International Corporation (SMIC) on the Entity List in December 2020, restricting its access to American equipment and technology, the assumption in some quarters was that China’s domestic chip ambitions would stall. Five years on, that assumption has proved incomplete. SMIC continues to manufacture at scale, China’s broader semiconductor ecosystem has expanded dramatically, and the global chip industry operates in a fundamentally different landscape. For businesses sourcing electronics, building hardware products, or operating in any sector where chips are a critical input, understanding China’s semiconductor push is no longer optional.
SMIC: China’s Flagship Foundry and Its Capabilities
Founded in 2000 in Shanghai by Richard Chang, a veteran of Taiwan’s chip industry, SMIC was built with the explicit mission of creating a world-class foundry on Chinese soil. For its first decade it operated mainly as a trailing-edge manufacturer, producing chips at process nodes like 28nm and 40nm for clients including Qualcomm, Texas Instruments, and a range of consumer electronics makers. These “mature” nodes remain the backbone of the global chip economy, powering automotive electronics, industrial controls, IoT devices, power management chips, and the vast majority of consumer appliances. SMIC’s strength at these nodes has always been commercially significant even when it attracted less attention than cutting-edge foundries.
The headline news from SMIC in recent years has been its work at more advanced nodes. In 2023 the company produced chips using a 7nm-class process — demonstrated in Huawei’s Kirin 9000S processor inside the Mate 60 Pro smartphone — without access to ASML’s extreme ultraviolet (EUV) lithography equipment, which is blocked under Dutch and US export controls. The technical feat, achieved through multiple patterning with older deep ultraviolet (DUV) machines, showed that restrictions can slow but not entirely halt China’s chip progress. Yields at advanced nodes remain lower than TSMC’s equivalent processes and manufacturing costs are higher, but the capability exists and is improving with each production cycle.
As of 2026, SMIC operates major fabs in Shanghai, Beijing, Shenzhen, and Tianjin. Its reported revenue for fiscal year 2024 was approximately $8.03 billion, up from $6.32 billion in 2022. Capital expenditure has remained high — around $7.5 billion in 2023 — reflecting continued investment in capacity expansion across both mature and advanced process nodes.
The Policy Engine Behind China’s Chip Ambitions
SMIC is the most visible component of a much larger state-directed effort to build end-to-end semiconductor self-sufficiency. That effort flows primarily through the National Integrated Circuit Industry Investment Fund, better known as the “Big Fund” (大基金). Phase 1, launched in 2014, mobilized approximately 138 billion RMB. Phase 2, announced in 2019, raised an additional 200 billion RMB. A third phase — reportedly in the 344 billion RMB range — was inaugurated in 2024, focusing specifically on semiconductor equipment and materials, the areas where China’s supply chains remain most exposed to foreign supply disruption.
The strategic logic is straightforward. China assembles the largest share of global electronics yet historically imported the majority of the chips inside those products — approximately $350 billion in semiconductors annually at peak, exceeding even its oil import bill according to data from China’s Ministry of Commerce. Reducing that dependence is simultaneously an industrial policy objective, a national security imperative, and an economic priority. The 14th Five-Year Plan and 2035 Long-Range Objectives continue to list semiconductor independence as a core technology priority, with specific procurement targets for domestic chips across government and regulated-industry buyers.
The Ecosystem: Design, Equipment, and Materials
A foundry is only as capable as the ecosystem around it. China’s semiconductor push extends into every layer of the value chain, with varying degrees of progress at each level.
On chip design, fabless companies including HiSilicon (Huawei’s in-house design arm), Unisoc, Cambricon (AI chips), and Horizon Robotics (automotive AI) represent a deepening pool of domestic talent and intellectual property. Alibaba’s T-Head division has produced custom server processors for its cloud infrastructure. On manufacturing equipment, domestic alternatives are being developed by NAURA Technology Group and Advanced Micro-Fabrication Equipment (AMEC), with meaningful progress in CVD, etch, and deposition tools for mature-node process steps. AMEC’s etch tools in particular have been cited as competitive for some advanced process steps. Closing the full gap at leading-edge nodes, however, remains a multi-year challenge — the complete toolkit for sub-5nm production is not yet available domestically.
This distinction explains why the most useful framing is not “China is blocked from chips” but “China faces a ceiling at the leading edge while building massive scale at the trailing edge.” Those two realities have very different commercial implications depending on the specific chips your business needs.
What Export Controls Have and Have Not Accomplished
US export controls have imposed real costs on SMIC’s advanced ambitions. Without access to ASML’s EUV machines, achieving sub-5nm production at high yield through conventional single-patterning is not feasible. TSMC, Samsung, and Intel remain ahead at 3nm and 2nm nodes and will likely stay ahead for several years. As explored in the GreatHandshake analysis of Huawei’s sanctions experience, restrictions and adaptation interact dynamically over years rather than producing decisive outcomes quickly — and SMIC’s trajectory follows the same pattern at a systemic level.
At the same time, mature-node capacity has seen no effective constraint on China’s buildout. SMIC, Hua Hong Semiconductor, and dozens of smaller fabs have added enormous trailing-edge capacity, creating commercial competition in chips for automotive, industrial, power electronics, and consumer applications. Chinese-origin chips at 28nm and above are commercially competitive for cost-sensitive applications where export compliance is not a constraint. Electronics manufacturers in Southeast Asia, India, the Middle East, and Latin America are already integrating significantly more Chinese chip content into finished goods. The ZTE sanctions episode offered an earlier preview of how supply chain concentration risk cuts both ways: complete reliance on any single country for critical components creates fragility regardless of which country that is.
Practical Implications for Global Supply Chain and Procurement Teams
For US-headquartered companies, the compliance environment requires careful tracking of chip origins. The Entity List, Foreign Direct Product Rule (FDPR), and related regulations create restrictions not just on exporting to SMIC but on downstream products incorporating chips manufactured using US-origin equipment or software. Legal counsel familiar with Bureau of Industry and Security (BIS) regulations is essential for any company with cross-border supply chains touching Chinese semiconductor manufacturing. The US Bureau of Industry and Security maintains updated regulatory guidance on the Entity List and FDPR rules that supply chain managers should review regularly.
For companies not subject to US export compliance constraints, Chinese foundries offer genuine commercial value at mature nodes. Domestic Chinese chip designers produce application processors, Wi-Fi chips, display drivers, and power management ICs that are fully competitive on price-to-performance at non-advanced nodes. Understanding China’s broader hardware ecosystem — from foundry to component market to finished product — is a prerequisite for sound sourcing decisions in this environment. The China Ministry of Industry and Information Technology (MIIT) publishes guidance on domestic substitution requirements for government procurement and regulated sectors, shaping which chips appear in infrastructure products — a dynamic that foreign component vendors operating in China cannot afford to ignore.
The Bilateral Stakes and the Long View
US semiconductor equipment companies — Applied Materials, Lam Research, KLA — derived between 25% and 35% of their revenues from China before the most recent export control tightening. Those revenues funded R&D that benefits the entire global semiconductor ecosystem. The industry has consistently advocated for precision in export controls over blanket restrictions, arguing that overly broad measures accelerate Chinese domestic development while imposing costs on US companies without proportionate security benefit.
The scenario most damaging to global efficiency is one where the world bifurcates into two separate chip ecosystems, each subsidized and each inefficient relative to an integrated global market. The more commercially productive scenario — one where trade continues at mature nodes, restrictions are calibrated to genuine security concerns, and companies on both sides maintain commercial relationships — requires informed business communities on both sides of the Pacific. SMIC and China’s semiconductor push represent not a near-term threat to TSMC’s leading-edge dominance, but a sustained, well-resourced decade-long effort to build full-spectrum chip manufacturing capability. The businesses that understand this clearly will make better sourcing decisions, navigate compliance more effectively, and find the bilateral opportunities that others miss.