China's national champion returns with big ambitions. Talk of a "Sputnik moment"

• The Politburo of the Communist Party of China has once again identified AI as one of its long-term development priorities.
• Huawei creates supply chains covering the entire process of designing and manufacturing integrated circuits.
• China reports further successes in the production of increasingly efficient microprocessors.
• Among the achievements is to be the development of its own method of lithography in extreme ultraviolet (EUV) technology. Until now, the only significant player in this field was the Dutch ASML.

The monthly study session of the Politburo—the “managerial,” narrowest organ of the Communist Party—on April 25 was devoted to AI. During the session, Chinese President Xi Jinping once again pointed to the need to “concentrate resources to address challenges related to core technologies such as high-end chips and core software.”

The Chinese leadership has ambitions to create a comprehensive AI ecosystem, independent of the US and other countries of the world . The second important issue is the popularization of AI use in society. In this way, Beijing has clearly declared support for the domestic semiconductor industry.

Huawei national champion?

Standard Chinese practice is to create national champions . With broad state support, such companies do not so much gain a dominant position in the market as satisfy specific government needs and then begin to expand abroad.

Huawei used to be such a champion in telecommunications. But since being hit by U.S. sanctions, the company has expanded its business significantly, and its telecommunications experience is proving useful in the semiconductor industry.

From the information that is coming in, we can conclude that the ambitions of Huawei, supported by the authorities, are gigantic . The goal is to create a comprehensive supply chain covering all stages of semiconductor design and production, including the production of lithography machines.

According to commercially available satellite images from the American Planet Labs, construction of three large semiconductor production plants was to begin in Shenzhen - where Huawei's headquarters are located - as early as spring 2022. The entire project was to receive support from the city authorities.

Huawei owns one facility directly, where 7nm integrated circuits for smartphones and Ascend family chips designed with AI in mind will be manufactured.

The other two plants belong to semiconductor equipment manufacturer SiCarrier and memory manufacturer SwaySure. Officially, Huawei dissociates itself from both entities. However, as the Financial Times has shown, both companies have been supported by the giant from the very beginning, helping them raise funds, sharing knowledge and even sending its employees to them. There are two more plants nearby, belonging to logic chip manufacturers Pengxinwei and Shenzhen Pensun. According to the US authorities, both companies are linked to Huawei.

Complete ecosystem

According to the Financial Times, this is the tip of the iceberg. Huawei is said to be linked to varying degrees with Tanke Blue, a manufacturer of silicon carbide, which is needed to produce silicon wafers, and manufacturers of memory chips, logic circuits, and power chips: SiEn, Fujian Jinhua, and Pengjin, as well as semiconductor designer HiSilicon. In turn, through SiCarrier, the company is said to be linked with Zhuhai Jishi, a manufacturer of chemicals needed to produce semiconductors, Yulangsheng, a supplier of lithography machines, and Changguang Jizhi, a supplier of optics. This gives the picture of a comprehensive ecosystem of semiconductor production , combining the capabilities of TSMC, SK Hynix, ASML, and Nvidia. China therefore wants to create an entire autonomous value chain, which, apart from the People's Republic of China, is also shared by companies from Taiwan, South Korea, the Netherlands, and the United States.

And that's not all. Huawei is investing in the construction of semiconductor production plants in Shanghai, Ningbo, and Qingdao . SMIC and Shanghai Micro Electronics Equipment were supposed to provide extensive support in these projects. It's hard to imagine that both companies would agree to support their competitor without pressure from the authorities. Especially after Huawei allegedly stole their experienced engineers in previous years.

There is also another side to the coin. Huawei probably decided to engage more broadly in semiconductor production because it was dissatisfied with the products supplied by Chinese companies, including SMIC. The company's ambitions are also visible in its research and development spending . As shown by financial reports, Huawei has been spending over $20 billion annually on this purpose since 2020. In 2024, it was almost $25 billion.

Further successes

Chinese companies have already gained a strong position in the market for less advanced integrated circuits. They often escape the attention of government industry development programs as less promising, not crucial from the point of view of AI and other advanced technologies. However, they are widely used in consumer electronics, household appliances, cars and the arms industry. Their production also allows for gaining valuable experience.

However, for the government in Beijing, the most important thing is the most modern microchips needed for the development of AI . Designed by Huawei and manufactured by SMIC, the Ascend 910C is to be comparable to Nvidia's H100. Recall that the H100 is a graphics processing unit (GPU), the most powerful currently on the market, designed specifically for applications related to artificial intelligence. The H100 contains 80 billion transistors, which is 6 times more than its predecessor, the A100 chip.

The Shenzhen-based company was set to take the next step by starting deliveries of advanced CloudMatrix 384 AI chip "clusters" in April.

The most popular cluster is currently NVL72 Nvidia , combining 72 GB200 chips. In CloudMatrix 384 Huawei was to combine as many as 384 processors to compensate for their weaker parameters. The use of optical technology was to ensure more efficient functioning of the cluster. According to Huawei, CloudMatrix has 67 percent more computing power than NVL72 and three times greater total memory capacity.

The Chinese semiconductor industry has achieved another success, but there are a few "buts." According to Dylan Patel of SemiAnalysis, CloudMatrix uses more power. This is the most obvious effect of using five times more chips than Nvidia's chip. In addition, Huawei's software requires significantly more IT work. For these reasons, the operating costs of CloudMaster can be three to five times higher than for NVL72. The Chinese cluster is also much more expensive, $8.2 million vs. $3 million .

Towards extreme ultraviolet

One of the key challenges for the development of the Chinese semiconductor industry is the fact that American sanctions have cut off access to lithography machines operating in extreme ultraviolet (EUV) technology. Their only supplier is the Dutch ASML. Hence the interest in alternative solutions, such as the N+2 process developed by SMIC. This did not mean abandoning attempts to create their own EUV.

Perhaps the breakthrough was achieved in March of this year. A team of scientists from the Shanghai Institute of Optics and Precision Mechanics of the Chinese Academy of Sciences published the results of their research in the Chinese Journal of Lasers. The scientists succeeded in obtaining a laser-generated EUV plasma light source, a key technology in ASML's lithography machines.

This should come as no surprise. The team is led by renowned physicist Lin Nan, a former employee of the Dutch company. Lin returned to China in 2021, encouraged by a government program to bring talent from key fields to the country. The physicist used his experience, but is testing his own solutions. ASML’s machines are based on molecular lasers based on carbon dioxide. Lin’s team used a different technology for the laser.

Molecular lasers offer greater efficiency. On the other hand, they are large, have low efficiency and high operating costs. According to Lin, the future belongs to the rapidly developing semiconductor lasers, which will make EUV lithography machines smaller and cheaper to manufacture and operate.

A separate issue is the question of how quickly this technology will be commercialized. On the Chinese side of the Internet, there is talk of a "Sputnik moment" in semiconductor production . There have even been reports that Huawei will start EUV production next year. Lin and his team are much more cautious. In their article, they only announce further research.

Growing emphasis on building independence in the semiconductor field

The pressure to build independence in the semiconductor industry is growing not only because of the competition with the US. Another reason is the constant growth in demand from AI projects. This technology has also been given priority by the authorities, and Chinese companies have eagerly taken up the challenge. China's DeepSeek has already become a permanent fixture in the country's administration, but the competition is not giving up. In April, Alibaba introduced the AI ​​tool Qwen3, which its creators claim is better than DeepSeek , the American ChatGPT and Grok from Elon Musk's stable.

Money follows priorities and demand. So it's a bonanza in China's semiconductor sector . According to Morgan Stanley, China achieved 34% independence last year in the field of graphics processing units (GPUs), widely used in AI. By 2027, that level is set to rise to 82%.

However, SMIC co-president Zhao Haijun is calming the mood. Although the company plans to invest over $7 billion in capacity expansion in the coming years, Zhao believes that the Chinese industry will be able to meet “at least 30 percent” of domestic demand for all semiconductors in the foreseeable future. SMIC co-president points to the unstable market situation and the trade war with the US as serious challenges to creating a comprehensive ecosystem planned by the authorities.

It is still difficult to assess the effects of the American sanctions. If their goal was to slow down the development of China, they may have achieved partial success. They certainly forced local companies to seek solutions independently. Huawei and SMIC received very good conditions for development: large state grants and limiting foreign competition - which was weakened by the sanctions. This does not mean eliminating foreign semiconductors, the business of smuggling them is also developing dynamically.