China faces significant challenges as it strives to catch up with the advanced semiconductor technologies of the West. According to recent analysis from the Information Technology and Innovation Foundation (ITIF), the country is lagging by as much as five generations behind global leaders.
While Chinese firms are believed to be approximately two years behind major players in designing logic chips, the gap widens significantly for memory chips. This discrepancy has raised various concerns within the global tech community.
One report author, Stephen Ezell, pointed out the major shortcomings of Chinese semiconductor manufacturing. He explained how equipment, like lithography tools—essential for producing chips—reinforces China's difficulties, with estimates of being five generations behind.
Ezell cautioned against complacency, noting the potential risks if the US and its allies overlook China's advancements. "Their industries could face significant diminishment without concerted efforts to sustain innovation and competitiveness," he stated.
Interestingly, the report acknowledged China's strides in intellectual property. Over recent years, the nation has outpaced the US and Japan in patent filings, demonstrating its commitment to developing its semiconductor industry.
Notably, China has stepped up its chip-related international patent applications under the Patent Cooperation Treaty (PCT). From just 122 approved patents ten years ago, the number rose to over 3,400 by 2020.
Despite this upward trend, the report clarifies many of these patents do not constitute groundbreaking innovations. Instead, many represent incremental advancements rather than significant breakthroughs.
Analyzing broader trends, the ITIF reported the US share of global semiconductor manufacturing has plunged dramatically, from approximately 37 percent in 1990 to only 12 percent by 2021. Simultaneously, China's share rose from virtually zero to equate the U.S. share, albeit heavily skewed toward older semiconductor technologies.
The legacy semiconductors produced predominantly by China are often used for common applications, such as automobiles, appliances, and medical devices. Although this market segment is substantial, it highlights China's struggle with cutting-edge technologies.
For example, companies like Texas Instruments recently reported improved funding wins amounting to $1.6 billion as part of the US CHIPS Act. This investment highlights a targeted effort by the US to bolster its semiconductor sector.
Progress does seem to occur for Chinese firms, but analysis indicates they often compete on price rather than innovation. This strategy connects back to the relatively low ranking of China's R&D spending compared to global peers, with its investment scoring just 40 percent of the U.S. level.
This low investment could be detrimental, especially since cheaper competitors often undermine established innovators. Examples of this phenomenon exist across various sectors like consumer electronics and clean energy.
Sifting through China's semiconductor ambitions, the ultimate goal remains achieving self-sufficiency. By 2025, the Chinese aim to reach 70 percent self-sufficiency, but analysts estimate they may only achieve 30 percent by then without significant investment—around $1 trillion, to be precise.
The report attributes China's long-standing commitment to its semiconductor industry to trends dating back to the mid-2010s. This period predates recent U.S. export controls, which some argue triggered China’s intensified focus on developing internal capabilities.
China’s government has intentionally decreased transparency concerning its innovation capacities under President Xi Jinping. This lack of disclosure complicates analysts’ attempts to assess the level of China's technological prowess accurately.
Meanwhile, experts recommend the U.S. strengthen rules governing trade collaborations and updates within the World Trade Organization. Redirecting focus to narrower export controls could find the right balance between national security interests and commercial viability.
Ezell's recommendations advocate for cooperation among allied nations to avoid overextending technological development solely on domestic fronts. The complex nature of today’s tech ecosystem makes it difficult for any single country to go it alone.
It remains clear: the situation is fluid, requiring continuous observation from leaders and policymakers alike. The efforts made and decisions taken today may set the stage for either strengthened or diminished positions within the semiconductor arena.
