Will any Chinese semiconductor foundry have 20% or more global semiconductor market share before 2033?

In October 2022, the US instituted new, wide-ranging export controls aimed at controlling a set of “chokepoint” technologies in the global semiconductor supply chain. China is one of the leading countries in AI, but AI advancements have historically run on compute, and China’s access to cost-competitive machine learning (ML) compute — the Chinese AI industry currently relies in large part on AI chips designed and fabricated abroad, and in particular Nvidia GPUs — is now in question.

The US export controls prevent the export of high-performance AI chips to China, as well as the export of advanced tooling and materials used to make such chips. Still, one way for China to gain better access to cost-competitive ML compute is to indigenously produce high-quality AI chips. In 2015, China set out an ambitious plan aiming to bring the proportion of chips bought by Chinese firms that is domestically produced from 15% to 70% by 2025; as of 2021 that number had gone up to 24%. With the October restrictions — and with US allies like Taiwan, Japan, South Korea, and the Netherlands enacting their own controls — Chinese firms now face substantial challenges in their attempts to indigenize semiconductor production.

Chips are fabricated in “fabs” — semiconductor fabrication plants where the chips are manufactured on silicon wafers. Fabs are generally owned and operated by “(pure-play) foundries” — companies that specialize in chip fabrication for clients (who design the chips) on a contractual basis. (The alternative to the foundry model is an integrated device manufacturer (ISM) which both designs and fabricates chips. Examples of ISMs include Intel and SK Hynix.)

The most famous, advanced, and profitable foundry is Taiwan Semiconductor Manufacturing Company (TSMC), which in Q1 2023 had a market share of 60.1%. As of May 2023, TSMC has a market cap of 15T TWD ($470B). Notable Chinese foundries include Semiconductor Manufacturing International Corporation (SMIC) (Q1 2023 market share: 5.3%) and Hua Hong Semiconductor Limited (Q1 2023 market share: 3.0%). Due to the October export controls, SMIC and Hua Hong are cut off from much of the cutting-edge equipment and materials necessary to fabricate advanced chips.

For more information, I have written a primer on indigenously made Chinese AI chips, intended to provide a useful introduction and reference for anyone interested in forecasting or learning more about China’s ability to indigenously produce AI chips. It explains some key concepts, provides an overview of the chip-making process, provides an overview of relevant export controls, and describes key inputs, context, and organizations relevant to understanding Chinese chip-making progress.