The escalation of tensions between the US and China has reinforced China's determination to achieve semiconductor self-sufficiency in the face of continued pressure from the US.

In August 2023, during the visit of US Secretary of Commerce Gina Raimondo to China, Huawei unexpectedly released the Mate 60 Pro, which is equipped with the 7-nanometer process developed by SMIC. This move was seen as an important announcement to show Huawei's determination to resist the US at all costs. It also triggered the sensitive nerves of the US, leading to continued tightening of controls on China.

According to semiconductor equipment companies, China has not given up. Despite facing financial challenges, it has established three major blueprints for semiconductor development. The global equipment and materials supply chain is also quietly benefiting from China's large-scale initiatives.

In response to the US-led multinational efforts to block China's semiconductor industry, the Chinese government recently established the National Integrated Circuit Industry Investment Fund Phase III (referred to as the Big Fund Phase III), with a registered capital of 344 billion yuan. This is the largest fund in history, surpassing the total of the first and second phases. The Chinese Ministry of Finance is the largest shareholder, and six major state-owned banks have also invested over 114 billion yuan, holding more than 33% of the shares.

Semiconductor equipment companies stated that the US's expanded efforts to block China's semiconductor industry have indeed been effective. China is unable to obtain crucial equipment and is experiencing a loss of international talent. Even for popular AI-related chips, they can only get downgraded versions from NVIDIA, and local chip manufacturers without advanced process technology assistance can only make limited progress.

However, the Chinese government remains undeterred and is fully integrating the disordered supply chain with initiatives such as the Big Fund Phase III, providing substantial support for key manufacturers and demonstrating the determination to develop the semiconductor industry. The three major development blueprints include advanced process technology, advanced packaging, and HBM-related fields.

In terms of advanced process technology, SMIC's first-quarter financial results have revealed the challenges. Despite an expansion in revenue and an 80% capacity utilization rate, the operating profit margin and net profit margin were only 0.02% and 3.6%, respectively, far below TSMC, GF, and GlobalFoundries.

SMIC's first-quarter gross margin was only 13%, a sharp decline from 38% in 2022, and capital expenditures have been increasing annually, resulting in continuous outflows of cash. The key factor contributing to SMIC's declining performance is the import restrictions on crucial equipment, forcing them to use DUV equipment to achieve 7/5-nanometer process technology.

Lin Poren, the former vice president of R&D at TSMC and known as the "father of immersion lithography," recently stated that if TSMC can achieve 7/5-nanometer DUV process technology, SMIC can do it too, but at a considerably high cost.

In addition to the advanced process technology, China is also focusing its efforts on the development of advanced packaging and HBM. In the HBM field, China's current focus is on Yangtze Memory, which is rapidly advancing.

Furthermore, while China is working to achieve semiconductor self-sufficiency, it is facing challenges such as restricted supply and extended delivery times from global advanced process and packaging equipment manufacturers like ASML, Applied Materials, and TEL. In response, China is also supporting domestic equipment manufacturers such as Naura, Shanghai Micro Electronics, and North Huachuan.

China is also careful to observe red lines drawn by the US, providing large orders to equipment and material companies in Taiwan, Japan, and South Korea. This has led to high profits and long-term orders, enabling the global semiconductor supply chain to quietly land and secure opportunities.

Managing Editor: Chen Shih-Tsung