China’s Semiconductor Industry Thrives on Legacy Chips Despite US Sanctions

Despite US sanctions, China’s semiconductor industry has continued to advance, albeit with a significant gap remaining towards self-sufficiency. A report by SCMP reveals that US sanctions on China’s chip industry have failed to cripple the country, as production of legacy semiconductor chips using older lithography nodes surged by 40% in the first quarter of 2024.

At this pace, China is poised to dominate the legacy chip production industry, capturing an estimated 39% of the global market share by 2027. The remarkable production growth indicates China’s potential to become a global leader in older semiconductor chips.

A key driver behind China’s production surge lies in the absence of trade restrictions on “mature chips” or chips utilizing 28nm or older process technology. The US government has excluded older chips from its sanctions list to maintain supply chains, as these chips are widely used in devices ranging from smartphones to medical equipment and automobiles.

The US deems older chips as posing minimal national security threats. Excluding these chips from the sanctions list has propelled China’s semiconductor chip production to record highs, reaching 36.2 billion units in March alone.

China’s production in the first quarter of 2024 is nearly triple that of the first quarter of 2019, when the country embarked on a mission to boost domestic chip production.

Due to US sanctions, China has shifted its focus towards mature semiconductor chips. Extensive government support has been instrumental in driving China’s production surge, leading to an oversupply situation.

If the US maintains its current regulations, China will be limited to producing chips using older lithography nodes, hindering its ability to compete with the likes of Intel and TSMC. With limited access to the necessary tools for manufacturing advanced processors, China’s path to self-sufficiency remains elusive.

Reports indicate that semiconductor chip imports grew by 12.7% in the first quarter of 2024, highlighting China’s significant distance from achieving self-sufficiency.

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