Stephen Ezell
Introduction
Semiconductors represent one of the world’s most important industries, the core technology that powers the modern digital world.1 Recognizing this vital role, China’s government has prioritized the sector, investing hundreds of billions of dollars to catalyze the development of an indigenous semiconductor ecosystem and to ideally cultivate globally competitive semiconductor firms across virtually all segments of the semiconductor value chain, from semiconductor design and fabrication to assembly, test, and packaging (ATP).
Thus far, those efforts have met with uneven success. With regard to the fabrication of leading-edge logic semiconductor chips, China’s flagship competitor, the Semiconductor Manufacturing International Corporation (SMIC), likely stands about five years behind global leaders such as the Taiwan Semiconductor Manufacturing Company (TSMC).2 As G. Dan Hutcheson, vice chair of research firm TechInsights, explained, “Ten years ago, [Chinese companies] were two generations behind. Five years ago, they were two generations behind, and now they’re still two generations behind.”3 Chinese competitors are even further behind with regard to semiconductor manufacturing equipment (SME), such as the lithography tools that make semiconductors: One commentator noted that Chinese firms might be as many as five generations behind in this field.4 As one analyst explained, “The best machinery a Chinese company can produce makes chips that are 28 nanometers wide; the industry’s cutting-edge equipment can make 2-nanometer chips.”5
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