China’s Chip Industry Is On The Rise

China’s chip industry continues to boost production as the communist country seeks to become more self-sufficient for its burgeoning artificial intelligence industry.

Chinese companies have scaled up their production of AI chips as the country aims to become less reliant on Western AI chips. Chinese government officials and industry executives said increasing its AI hardware industry could help it become more resilient in the face of American export controls.

However, experts tell the Daily Caller News Foundation that Chinese hardware production remains limited and that policymakers could explore options to limit Chinese chip production.

Chinese tech conglomerate Huawei cannot produce enough AI chips to meet the country’s demand and is limiting overseas sales, rotating chairman Eric Xu said in mid-September, according to Reuters. Xu said the company’s Ascend 950DT AI chip had produced good results and expects many Chinese AI developers to train their models using the chip in 2027, per the outlet.

The Huawei rotating chairman tied its desire to increase its domestic chip production to China’s national goal of reducing its reliance on foreign technology, such as Nvidia’s AI chips.

“We cannot accept a destiny where we cannot control our fate being determined by others in terms of willingness to sell chips to China or not,” Xu remarked, per Reuters.

“No matter if it’s for the Chinese government, industry in China, or for Huawei, it is certainly the way forward to try to push for ​full self-sufficiency for chips,” he added.

Chinese President Xi Jinping emphasized “self-reliance” and creating an “autonomously controllable” AI hardware and software ecosystem at an April 2025 Politburo meeting on artificial intelligence, according to the RAND Corporation.

China’s plan to have a flourishing domestic chip industry goes back to 2014, when it established the state-owned National Integrated Circuit Industry Investment Fund, commonly known as the “Big Fund,” to increase Chinese semiconductor manufacturing, according to the Wall Street Journal.

One China expert believes that domestic production push is part of a larger project to spread its AI ecosystem to the world.

This is indicative of a “long-running strategy to crowd out American competitors and eventually develop alternatives, not just for China’s own AI industry, but to supply as well to the rest of the world,” Ryan Fedasiuk, a fellow at the American Enterprise Institute (AEI) focused on U.S.-China relations, told the DCNF in an interview.

“Since we don’t have enough capacity to even satisfy the ​demand in China, we don’t have a plan to expand into the international market in a fully-fledged way,” Xu told reporters at the company’s Huawei Connect conference in Shanghai, China in September.

“I think Ascend market share should be bigger than Nvidia’s,” he added, although the company did not provide data to support its claim to Reuters.

One expert believes that China has made significant progress in increasing its chip manufacturing capacity since the Biden administration subjected 22 major Chinese players in the AI sphere to a trade blacklist in 2022, according to Reuters.

“I think since the October 2022 export controls under Biden, which really motivated them to accelerate longstanding efforts, to try to build up their semiconductor industry,” Kyle Chan, a fellow at the John L. Thorton China Center at the Brooking Institution, told the DCNF in an interview.

Despite the country’s progress, Chan cautioned that China still faces “bottlenecks” in how many chips they can produce.

“China’s chip production capacity remains low and is likely to remain much lower than the U.S. led ecosystem for the foreseeable future,” Fedasiuk said.

Chan added that China purposefully “cut themselves off” from purchasing newer Nvidia chips to focus on boosting their own domestic production.

China has discouraged Chinese AI labs from purchasing Nvidia AI H200 chips, although China allowed ByteDance and Tencent to purchase more Nvidia chips in August to keep pace with American AI companies, according to the Financial Times.

Chan compared China’s desire to reduce reliance on Western chips to wanting to put out the “longer term source of the fire, rather than just like stamp out the fire in front of you,” Chan said.

AI remains an integral part of Huawei’s corporate strategy.

AI is Huawei’s “biggest opportunity,” Guo Ping, the chairman of Huawei’s supervisory board, told employees in September, per the outlet.

An Nvidia spokesperson did not respond to a DCNF request for comment.

Nvidia has reportedly worked to convince lawmakers to strip back regulations that would bar them from selling advanced AI chips.

“The idea of AI diffusion limiting other countries’ access American technology is a mission expressed exactly wrong,” Huang said in an interview with Stratechery in May. “It should be about accelerating the adoption of American technology everywhere before it’s too late. If the goal is for America to lead, then AI diffusion did exactly the opposite of that.”

Huawei aims to compensate for its less powerful chips by connecting as many as 100,000 chips together into one larger computer system.

In a similar vein, Chinese chipmaker ChangXin Memory Technologies (CXMT) as well as Yangtze Memory Technologies (YMTC) aims to enter the memory chip dominated by Korean manufacturers Samsung and SK Hynix, according to a Reuters report.

AI companies seemingly insatiable demand has created a global memory shortage that industry experts believe will continue through 2027 and potentially beyond, per the outlet. The two Chinese memory companies grew with backing from China’s national semiconductor fund and local governments.

China continues to increase its AI hardware manufacturing capacity, but experts believe the U.S. government still has a lot of leverage over its foreign adversary.

Chan referred to the Multilateral Alignment of Technology Controls on Hardware (MATCH) Act, a bipartisan bill that would aim to restrict China’s access to advanced semiconductor manufacturing equipment, SMEs.

The National Defense Authorization Act (NDAA), an annual must-pass defense spending bill, may include the MATCH Act and other anti-China export controls bills, Indiana Republican Sen. Jim Banks announced in July.

Fedausiuk said that China’s increased chip production does not serve as an indictment of America’s export control regime.

“It’s very in vogue to say because China’s chip capabilities are increasing, that must mean export controls have somehow failed, and we should abandon this effort,” he explained. “I don’t think that’s true at all, and in fact, I think that the this is a good reason to maintain the current architecture, and in fact, to deny China’s AI labs access to compute clusters in other countries, while they remain dependent on them.”

“Even though we see them making significant progress, that isn’t a good reason to simply give China’s AI labs all the compute they need to serve their models to global publics,” Fedausiuk added. “That would make no sense, and in fact, would only make China’s AI industry far more competitive with the United States far sooner than it otherwise would be.”

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