Four years ago, the United States tightened the screws on China's technological ambitions, rolling out export curbs on advanced chips, commonly known as semiconductors, used in artificial intelligence (AI), data centers and national defense.
The Biden administration aimed to limit Beijing's ability to develop technologies that could boost its military and financial strength, further narrowing the gap between the world's two largest economies.
The restrictions pushed Beijing to accelerate its push for chip self‑reliance, a goal laid out years earlier in its Made in China 2025 plan. The Chinese government has since poured hundreds of billions of dollars into building up domestic semiconductor production.
Chips as a national security issue
Beijing granted huge subsidies, tax breaks and other cost savings to nurture local counterparts to NVIDIA — the US company behind the cutting‑edge Blackwell AI chip — and Taiwan's TSMC, the world's dominant contract chipmaker for advanced semiconductors and developer of the N2 chip‑manufacturing technology.
SMIC, the backbone of China's self-reliance plan, made record revenues of $9.3 billion (€7.8 billion) last year, while HuaHong, the mainland's second-largest chip foundry, has been running at 106% operational capacity due to demand, according to its 2025 fourth-quarter earnings report.
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But while China has been pushing hard to play catch-up with US Big Tech, Ryu Yongwook, an 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 it," Ryu, an expert in US-China tech rivalry, told DW.
The country lags the US in terms of research, design and innovation, and is also behind Taiwan and South Korea in terms of production, says Ryu.
Chinese chipmakers move up the value chain
China has, however, achieved meaningful breakthroughs in the past few years. According to the Rhodium Group, a think tank focused on China, the country has captured a roughly 30% share of the global market for legacy chips — the workhorses of the modern economy.
These semiconductors are not the fastest or most advanced, but are essential in vehicles, industrial equipment and consumer electronics. Chinese firms can now produce them on a massive scale, raising concerns among global competitors.
"Chinese production expansion will drive down [chip] prices globally and put pressure on non-Chinese vendors," predicted John Lee, the Berlin-based director of research consultancy East-West Futures.
"This is already happening in some sectors, such as silicon carbide wafers," a critical material used for high-power chips, he says.
Breakthroughs in cutting-edge chips
China has also made progress in more advanced chips, successfully producing 7-nanometer-class processors that now power Huawei's latest smartphones.
These chips are comparable 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 Rühlig, senior analyst for Global China at the European Union Institute for Security Studies, described China's chip ambitions as facing a "brick wall" of technological limits and US sanctions.
"There is only so much that you can do without access to the US's most advanced chipset," Rühlig told DW, adding that China may need "a decade or so" to catch up.
Reflecting a shift in Beijing's priorities, the Communist Party's new Five‑Year Plan plays down earlier goals of chip dominance.
The 141‑page document highlights AI more than 50 times and sets out a "model-chip-cloud-application" framework that positions advanced chips as one part of a larger computing ecosystem.
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China is, instead, focusing on practical, task-oriented AI for industry that needs less computing power, which domestic chips can easily handle.
China's chips and AI systems may not be on the absolute cutting edge, but they deliver strong performance at far lower cost. This is driving rapid adoption across the Global South, where governments and companies increasingly prefer Chinese over Western solutions.
Taipei-based market intelligence firm Trendforce noted recently that Chinese AI platforms, including DeepSeek, Alibaba's Qwen and others, had captured roughly 15% of the global AI model market by late 2025.
This poses a long-term threat to the global dominance of Microsoft, Google and other US tech giants, that are projected to spend a record $700 billion this year on AI infrastructure, according to investment bank Goldman Sachs.
US lead faces real challenges
There are other hurdles for Silicon Valley's dream of AI systems that are smarter than a human brain. In January, the 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 fast‑expanding power sector gives it another leg up. With ICIS projecting an estimated 400 gigawatts of spare capacity by 2030, China can roll out data centers at scale 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," said Ryu Yongwook. "Cheap energy in China goes some way to make up for its relative chip inefficiency."
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ICIS sees three possible outcomes in the chip race:
Though the finish line is far away, the chip industry "faces a future in which Chinese competitors are both underpricing them and rapidly closing the gap in sophistication and reliability of products," concluded Lee.
