China Semiconductor Observatory - Baseline Report

This report provides a baseline snapshot of China’s semiconductor ecosystem by highlighting areas in which China will most likely continue to depend on foreign (especially US-origin) technology and in which Chinese firms will likely continue to grow their market share and technological capabilities. For a broader and deeper look at China’s chips ecosystem, its international linkages and development prospects, as well as policy implications, we recommend our 2021 study, Mapping China’s semiconductor ecosystem in a global context: Strategic dimensions and conclusions.

In the present report, we focus first on three strengths of China’s semiconductor ecosystem, where we believe Chinese companies will be competitive internationally and where foreign companies may increasingly use products and services that are developed, owned or located in China. These fields are (1) front-end fabrication (manufacturing) in mature nodes, defined as 28 nanometers (nm) and above; (2) assembly, test and packaging (ATP), also called “back-end manufacturing”; and (3) chips “designed in China”. We then assess three areas of weakness for China’s semiconductor ecosystem, where it will be challenged to substitute foreign technology providers with domestic alternatives out to 2030, and thus will likely continue to depend to some extent on US, Japanese, Taiwanese and European firms. These areas are (1) cutting-edge wafer fabrication at 7nm or more advanced nodes; (2) electronic design automation (EDA) tools, which are needed to design modern chips; and (3) semiconductor manufacturing equipment (SME).

Much depends on the impacts of the 7 October U.S. controls, expected additional U.S. measures and the responses of non-U.S. firms and governments that are critical players in the global semiconductor value chain. Another report from us in late 2023 will take stock of these impacts, and what they mean for the US-China technological rivalry and for a global economy that, especially in digital technologies, has been built for decades on interdependence through transnational division of labor.

This report was co-authored by:
Jan-Peter Kleinhans, Director of Technology and Geopolitics, Stiftung Neue Verantwortung e.V.
John Lee, Director, East West Futures