Four years after the United States tightened export controls on advanced semiconductors used in AI, data centers and defense, Beijing intensified a state-led push to reduce reliance on foreign chips. The move accelerated a strategy that traces back to the Made in China 2025 plan and has been backed by hundreds of billions of dollars in subsidies, tax breaks and other incentives aimed at building domestic rivals to companies like NVIDIA and at developing foundry capabilities comparable to Taiwan’s TSMC.
Chinese foundries have recorded notable gains. SMIC, a centerpiece of Beijing’s self-reliance effort, posted record revenue of about $9.3 billion last year, while HuaHong, the mainland’s second-largest contract manufacturer, said it operated above full capacity as demand surged. Yet several analysts warn that headline progress can be overstated. Ryu Yongwook of the National University of Singapore says China still trails the United States in research and chip design, and falls short of Taiwan and South Korea in the most advanced production technologies.
At the same time, China has made tangible advances in less cutting-edge segments. The Rhodium Group estimates China now accounts for roughly 30 percent of the global market for legacy chips, which are widely used in cars, industrial equipment and consumer electronics. Large-scale production of such semiconductors tends to push prices down and exert competitive pressure on non-Chinese suppliers. Observers point to areas like silicon carbide wafers as examples where Chinese capacity can alter global supply and pricing dynamics.
On the frontier of high-performance chips, Chinese firms have delivered 7-nanometer-class processors that power the latest Huawei phones. Those chips resemble technology TSMC supplied to customers in 2018 but lag current 3- and 5-nanometer nodes on speed, energy efficiency and cost. Tim Rühlig of the EU Institute for Security Studies warns that sanctions and limited access to the most advanced US equipment create a steep barrier to narrowing the gap, and that catching up could take a decade or more.
Reflecting a strategic shift, China’s recent Five-Year Plan places less emphasis on outright chip dominance and more on artificial intelligence. The plan articulates a model-chip-cloud-application framework that treats advanced semiconductors as one layer of a broader computing ecosystem. In practice Beijing is prioritizing task-oriented, industry-specific AI systems that require less raw compute and can often run effectively on domestically produced chips, delivering acceptable or strong performance at much lower cost.
That cost advantage is helping Chinese chips and AI platforms gain traction across the Global South, where price and integration often matter more than peak performance. Market tracker Trendforce reported that Chinese AI platforms, including DeepSeek and Alibaba’s Qwen, captured about 15 percent of the global AI model market by late 2025. That growth poses a competitive challenge to US cloud and AI leaders such as Microsoft and Google, even as those firms are expected to continue heavy investment in infrastructure; Goldman Sachs has estimated industry-wide AI spending on the order of hundreds of billions of dollars.
The US position faces another constraint: power. ICIS warns that US data centers dependent on top-tier chips could be limited by a strained grid, while China’s rapidly expanding power capacity may leave room for large data center deployments. ICIS projects roughly 400 gigawatts of spare capacity in China by 2030, which can help offset the relative inefficiency of some domestic chips for energy-intensive AI workloads.
ICIS sketches three broad outcomes: the US resolves its infrastructure limits and maintains a technological lead; the US keeps the edge in the most advanced chips while Chinese AI systems spread widely in the Global South; or geopolitical fragmentation produces two separate AI ecosystems. Regardless of which path unfolds, many in the industry expect Chinese competitors to keep undercutting prices while gradually closing gaps in sophistication and reliability, putting sustained pressure on non-Chinese vendors and reshaping global technology competition.