Four years ago, the United States clamped down on China’s technological ambitions by imposing export restrictions on advanced chips, commonly known as semiconductors, used in artificial intelligence (AI), data centers and national defense.
The Biden administration aims to limit Beijing’s ability to develop technologies that could boost its military and financial strength, thereby narrowing the gap between the world’s two largest economies.
The sanctions have prompted Beijing to accelerate its push for chip self-sufficiency, a goal set years ago in the Made in China 2025 plan. The Chinese government has since spent hundreds of billions of dollars expanding domestic semiconductor production.
Chips are a national security issue
Beijing provided heavy subsidies, tax breaks and other cost savings to NVIDIA – the US company behind the cutting-edge Blackwell AI chip – and Taiwan’s TSMC, the world’s leading contract chip maker for advanced semiconductors and developer of N2 chip-making technology – to boost local counterparts.
SMIC, the backbone of China’s self-reliance plan, made record revenue of $9.3 billion (€7.8 billion) last year, while Huahong, the mainland’s second-largest chip foundry, is running at 106% operating capacity due to demand, according to its fourth-quarter 2025 earnings report.
But while China is working hard to catch up with US Big Tech, Ryu Yongwook, assistant professor at the National University of Singapore’s Lee Kuan Yew School of Public Policy, believes progress is often exaggerated.
“Beijing wants to achieve chip self-sufficiency, but the current level is nowhere near that,” Ryu, an expert on U.S.-China technology rivalry, told DW.
Ryu says the country lags behind the US in research, design and innovation and also lags behind Taiwan and South Korea in production.
Chinese chip makers are moving up the value chain
However, China has made meaningful successes in the past few years. According to Rhodium Group, a think tank focused on China, the country has captured about 30% share of the global market for old chips – the workhorse of the modern economy.
These semiconductors are not the fastest or most advanced, but are essential in vehicles, industrial equipment, and consumer electronics. Chinese companies can now produce them on a large scale, raising concerns among global competitors.
“Sugar production expansion will slow down [chip] Global prices will rise and put pressure on non-Chinese sellers,” predicted John Lee, director of East-West Futures, a Berlin-based research consultancy.
“This is already happening in some areas, such as silicon carbide wafers,” a key material used for high-power chips, he says.
Breakthrough in cutting edge chips
China has also made progress in more advanced chips, successfully producing the 7-nanometer-class processors that now power Huawei’s latest smartphones.
These chips are equivalent to those released by TSMC in 2018 for US and other Western customers. However, they still lag behind 3-nanometer and 5-nanometer chips in speed, power efficiency, and production cost.
Tim Ruhlig, senior global China analyst at the European Union Institute for Security Studies, described China’s chip ambitions as facing technological limitations and a “brick wall” of US sanctions.
“There’s only so much you can do without access to America’s most advanced chipsets,” Ruhlig told DW. He said China may need “a decade or more” to catch up.
Reflecting a change in Beijing’s priorities, the Communist Party’s new five-year plan scales back earlier goals of chip dominance.
The 141-page document highlights AI more than 50 times and lays out a “model-chip-cloud-application” framework that positions advanced chips as one part of a larger computing ecosystem.
China’s Plan B sparks new rivalry
Instead, China is focusing on practical, task-oriented AI for industry, which requires less computing power that domestic chips can easily handle.
China’s chips and AI systems may not be completely state-of-the-art, but they deliver strong performance at very low costs. This is driving rapid adoption in the Global South, where governments and companies are increasingly preferring Chinese solutions over Western solutions.
Taipei-based market intelligence firm TrendForce recently noted that Chinese AI platforms including DeepSeek, Alibaba’s Quen and others were projected to capture about 15% of the global AI model market by the end of 2025.
This poses a long-term threat to the global dominance of Microsoft, Google and other US tech giants, who are projected to spend a record $700 billion this year on AI infrastructure, according to investment bank Goldman Sachs.
American leadership faces real challenges
There are other obstacles to Silicon Valley’s dream of AI systems that are smarter than the human brain. In January, global market intelligence provider ICIS warned that US data centers, which rely on high-end chips to power AI, could soon be limited by the country’s strained power grid.
By comparison, China’s rapidly expanding power sector gives it another edge. With ICIS projecting an estimated 400 gigawatts of additional capacity by 2030, China could launch massive data centers even if its chips are less efficient than their US counterparts.
“Cheap energy is a very important factor, not necessarily for chips but for AI and other advanced technologies,” Ryu Youngwook said. “Cheap energy in China somehow compensates for its relative chip inefficiency.”
ICIS sees three possible outcomes in the chip race:
- America is leading by fixing its power grid.
- The US remains the leader in AI research with advanced chips, while China’s AI systems spread across the global South.
- Or, if trade and geopolitical tensions increase, two distinct AI ecosystems could prevail.
Although the finish line is still far away, the chip industry faces “a future in which Chinese competitors are both undercutting them and rapidly closing the gap in the sophistication and reliability of products,” Li concluded.
Edited by: Tim Rooks