China’s top chip manufacturers, with strong government backing, are racing to produce several times more advanced semiconductors to support the rise of domestic artificial intelligence chip developers, despite ongoing US restrictions on the sector, Nikkei Asia has learned.
Semiconductor Manufacturing International Corporation (SMIC), Hua Hong Semiconductor, and several Huawei-linked chipmakers are all expanding or aiming to start production of chips on the most advanced technology available in the nation, which includes production on the seven- or even five-nanometer performance level, sources briefed on the matter said. The national effort to expand advanced chip production capacity is aimed at feeding the growing local need for AI computing infrastructure, they said.
In chipmaking, generally, the smaller the nanometer the more advanced the chip. Today, the most cutting-edge chips in mass production are three-nanometer devices, with two-nanometer chips beginning to enter production by leading players such as TSMC. Chips produced at ten-, seven-nanometer, or below are generally considered advanced nodes, and only a handful of chipmakers worldwide have the capability to manufacture them at scale.
China aims to boost output of relatively advanced chips to 100,000 wafers in one to two years, from less than 20,000 currently, two people said. One of the people said the country has set an even more aggressive target of adding an additional 500,000 wafers of capacity by 2030. It remains unclear, however, whether output can be ramped up so much given US export curbs have constrained China’s access to cutting-edge chipmaking equipment. The country has made progress in building up its own chip tool sector, but foreign-made machines still far outperform local alternatives.
SMIC is spearheading China’s efforts to produce advanced chips despite being on the US Entity List, a trade blacklist. Because it does not have access to ASML’s extreme ultraviolet (EUV) lithography tools, the company used less advanced equipment to build chips described as seven-nanometer-like and even more advanced nodes in Shanghai. Co-CEO Liang Mong-Song served as SMIC’s top technical advisor to replicate this approach at its plants in Beijing, three people told Nikkei Asia.
The chipmaker is also working on even more advanced production tech that some refer to as five-nanometer-like, according to multiple sources familiar with the matter. Huawei’s new Kirin 9030 mobile processors and its latest Ascend chipsets for AI computing are built on SMIC’s so-called “N+3,” an enhanced version of the seven-nanometer node intended to deliver performance comparable to five-nanometer technology.
Despite its successes, SMIC is not explicitly describing any of its facilities as “advanced,” said another executive-level person with direct knowledge of the matter.
“SMIC has produced [seven-nanometer-like] chips for some years now. It is a certain direction for SMIC to keep marching forward to more advanced technologies,” one of the people said. “The key bottleneck is still the quality and quantity of the output.”
Hua Hong Semiconductor, China’s second largest contract chipmaker, previously focused on mature, or legacy, chip production. It has now joined SMIC’s efforts to make advanced chips as central and local governments demand the nation’s key chipmakers help ramp up local production, three people told Nikkei Asia.
Huawei has provided some technical support to help Hua Hong in this effort, one of the people said.
Other Huawei-linked chipmakers in southern China are also gearing up to make chips, including advanced ones, needed for building an AI data center ecosystem. One of these, PengXinWei, has become a key R&D base for Huawei’s chip development and test production pilot lines. Another, Dongguan Guangmao Technologies, aims to build chips more advanced than ten-nanometer, Nikkei Asia has learned. The company was founded only in late 2023 and is supported by the Dongguan city government and Huawei.
JHICC, a US-blacklisted former memory chipmaker, has become a key base for domestic companies to test their new chipmaking equipment and materials on a viable production line.
Huawei plays a key role in ramping up production across a range of chips, including advanced chip production and critical power-related components, several people told Nikkei Asia.
Huawei itself plans to roll out several Ascend chipsets in 2026, including the Ascend 950 PR and Ascend 950DT, along with related computing solutions for AI infrastructure, as part of its efforts to further strengthen domestic AI computing capabilities. Its share of China’s AI computing chip market was about 23% in 2024, second only to Nvidia’s 66%, according to Bernstein Research. AMD held 5%, with Chinese AI chip developers, MetaX and Moore Threads each having around 1%.
Chinese central and local governments have played key roles in managing the country’s advanced chip production, such as determining which chip developers receive how much capacity, two people with knowledge told Nikkei Asia. Huawei still enjoys the greatest support in terms of local production capacity, followed by Cambricon Technologies, Alibaba’s T-Head Semiconductor, Sugon Information, and other local AI developers such as Moore Threads and MetaX, people briefed on the matter told Nikkei Asia.
Insufficient production capacity of advanced chips remains a key bottleneck for China as it seeks to rapidly build an AI computing ecosystem capable of competing with that of the US.
“At the end of the day, whether these Chinese AI chip developers can continue to thrive and become more competitive depends on their access to advanced domestic chip production,” said Donnie Teng, a chip analyst with Nomura Securities. “We are seeing many of them begin trial production and place orders with SMIC due to restrictions on working with foreign contract chipmakers. Their future is closely tied to how effectively local chip manufacturers can support them.”
At the same time, Beijing’s aggressive support for domestic AI chip developers as an alternative to Nvidia is giving a boost to the country’s advanced logic chip production, an area where China’s self-sufficiency rate remains low.
“Now all these Chinese chip developers have turned to domestic manufacturing partners,” a Chinese chip developer executive with direct knowledge of the matter told Nikkei Asia. “It’s totally different from the past, when their default production partners were TSMC or Samsung for chip-manufacturing services. They know that approach is no longer going to work for the long term.”
This shift has created a golden opportunity for China’s leading contract chipmakers. SMIC, for example, has emerged as the world’s third largest contract chipmaker, behind only TSMC and Samsung, while Hua Hong Semiconductor, once a much smaller player, has closed in on GlobalFoundries of the US and UMC of Taiwan in terms of market value.
Sources noted, however, that even if China’s chipmakers drastically increase their output, they are unlikely to meet all local demand for advanced logic chips, let alone pose an immediate threat to global leaders such as TSMC and Samsung.
Chinese chip developers are also seizing new growth opportunities. Cambricon, whose revenue has grown explosively since late 2024, reported its first annual net profit last year, a significant milestone for the company. The company is a core supplier of inference chips to Alibaba Cloud and is jointly developing next-generation chips with Alibaba. It said last year that it mastered a range of core technologies for complex physical chip design at advanced nodes, including seven-nanometer processes, and had already deployed these capabilities across several of its products.
Beijing-based Hygon Information Technology’s DCU has emerged as a leading domestic alternative to Nvidia’s A100 chips, as it is compatible with mainstream AI software ecosystems. The company’s AI chip revenue reached RMB 2.74 billion (USD 383.6 million) in the first three quarters of 2025, up 45% year-on-year.
In a December research note, Donghai Securities said that domestically developed CPUs accounted for more than 60% of procurement under China’s Xinchuang (information technology application innovation) program, with Huawei and Hygon Information Technology leading the first tier of suppliers.
China is also working to strengthen its chip ecosystem for AI computing servers. Nikkei previously reported that Chinese authorities are drafting rules to regulate purchases of Nvidia’s H200 AI chipsets, even if the US approves their sale, as the government seeks to balance support for domestic champions with the presence of foreign market leaders.
Restrictions on access to critical chipmaking tools, such as the most advanced EUV and immersion lithography machines, remain a major hurdle for China, but here, too, the country is making progress. Beijing has ramped up efforts to build the country’s own lithography tools, and Chinese chipmakers are increasingly looking to domestic equipment suppliers wherever possible. At the same time, the slowdown of Moore’s Law—the idea that the miniaturization of transistors will continue to drive progress—and the growing emphasis on advanced chip packaging are giving China additional opportunities to make progress, though the pace may not be as rapid as the government and businesses would like.
“Despite Chinese chipmakers’ ambitions, it is hard to reach the sky in one step. It remains challenging for them to expand and ramp up production very quickly with so many equipment restrictions still in place,” said an executive with a foreign maker of chip production equipment that supplies to SMIC.
Mark Li, a veteran semiconductor analyst at Bernstein Research, said that according to supply chain checks, China’s leading chipmakers are in expansion mode, ramping up local production and pushing further into relatively advanced manufacturing nodes.
“After many years of learning and improvement, China’s domestic semiconductor equipment sector has made meaningful progress, except in lithography, particularly cutting-edge extreme ultraviolet systems. Overall, China’s chip equipment industry and logic chip production do have some room to grow and have some upside,” he said.
“China’s drive to build more chip capacity at home will not only benefit domestic players, the spillover effects are also likely to support foreign equipment vendors whose products comply with export control rules.”
SMIC, Hua Hong, and Huawei did not respond to Nikkei Asia‘s requests for comments.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.