China’s semiconductor sector is ramping up production, striving for greater autonomy in its rapidly expanding artificial intelligence (AI) industry.
To lessen dependency on Western AI technologies, Chinese firms are increasing their output of AI chips. Officials and executives believe that bolstering the domestic AI hardware market may enhance the country’s resilience against U.S. export restrictions.
However, experts warn that the limitations in Chinese hardware production could prompt policymakers to explore measures to restrict chip manufacturing capabilities within the country.
Huawei, one of China’s leading tech companies, is currently unable to satisfy the domestic demand for AI chips and is curtailing its foreign sales, according to Eric Xu, the company’s rotating chairman. He noted that Huawei’s Ascend 950DT AI chip has shown promising results and anticipates many local developers will utilize it to train their models by 2027.
Xu pointed out that the drive to boost domestic chip production aligns with China’s goal of reducing reliance on foreign technologies, specifically mentioning the AI chips produced by Nvidia.
“We can’t accept a future where our destiny is dictated by the willingness of others to supply chips to China,” Xu quoted, emphasizing the importance of striving for full self-sufficiency in chip manufacturing.
Chinese President Xi Jinping reiterated the call for “self-reliance” and the creation of a controllable AI hardware and software framework during a Politburo meeting on the subject in April 2025.
The initiative to develop a robust domestic chip industry traces back to 2014 with the establishment of the National Integrated Circuit Industry Investment Fund, commonly known as the “Big Fund,” aimed at bolstering semiconductor production.
One expert argues that this push for domestic production is part of a broader strategy to establish a global AI ecosystem originating from China. Ryan Fedasiuk from the American Enterprise Institute suggests it aims not only to bolster China’s own industry but also to provide alternatives to competitors worldwide.
Xu remarked that while they lack sufficient capacity to meet domestic demands entirely, they do not currently have a well-formed strategy for international market expansion. He expressed a belief that Huawei’s Ascend chips should ideally command a larger share than those of Nvidia, although Huawei did not present supporting data to back this assertion.
A separate expert noted marked advancements in China’s chip manufacturing capabilities following the Biden administration’s trade restrictions targeting key Chinese AI entities in 2022. Kyle Chan from the Brookings Institution highlighted that these restrictions motivated China to expedite its semiconductor development efforts.
Yet, despite these advancements, both experts acknowledge that China still grapples with significant production bottlenecks. Fedasiuk commented that Chinese chip production remains considerably inferior to the U.S. ecosystem for the foreseeable future.
Chan indicated that China has intentionally limited its purchases of newer Nvidia chips to focus on enhancing domestic output, although recent approvals for companies like ByteDance and Tencent to acquire more Nvidia chips could be a step to keep competitive with U.S. firms.
Chan likened China’s efforts to lessen reliance on Western chips to addressing the root cause of a problem rather than simply treating the symptoms.
AI continues to play a pivotal role in Huawei’s strategic planning, with Guo Ping, chairman of Huawei’s supervisory board, mentioning it as the company’s “biggest opportunity” during a recent gathering.
While Nvidia did not respond to requests for comments, the company has been working to persuade lawmakers to ease regulations that would inhibit its ability to sell advanced AI chips.
Huawei is attempting to mitigate the limitations of its less powerful chips by integrating numerous chips into a single, more substantial system. Concurrently, Chinese memory chip manufacturers like ChangXin Memory Technologies (CXMT) and Yangtze Memory Technologies (YMTC) are targeting the memory chip market dominated by South Korean firms.
The ever-growing demand for AI has led to a global memory shortage, a trend expected to persist beyond 2027 as industry experts suggest. The growth of these Chinese memory companies has been largely facilitated by support from national and local government initiatives.
Despite increasing its manufacturing capabilities, experts assert that the U.S. government retains considerable leverage over China. Chan referenced the bipartisan MATCH Act, aimed at restricting China’s access to advanced semiconductor manufacturing devices, which might be included in the upcoming National Defense Authorization Act (NDAA).
Fedasiuk suggested that while China’s chip production advancements might appear as a challenge to U.S. export controls, they do not warrant abandoning these efforts. He emphasized the importance of maintaining tight control over AI resources to delay China’s competitive edge.
Therefore, the ongoing progress in China should not encourage rapid access to necessary resources for its AI labs, as that could enhance its global competitiveness before the United States is ready.
