China is shifting its strategy to support the domestic semiconductor industry, giving select companies greater control over state-backed research and easier access to subsidies. The move comes as tighter US controls on access to advanced technology force Beijing to rethink its approach to the sector. Semiconductor Manufacturing International, Hua Hong Semiconductor, Huawei, Naura, and Advanced Micro-Fabrication Equipment will be among those benefiting from the policy shift. The companies will have access to additional government funding without having to meet previous performance goals, and will be able to play a bigger role in state-backed research projects, reducing the influence of state-owned companies and academic institutes. The move represents an admission that previous massive and often ill-targeted subsidisation of the semiconductor industry to build up domestic capabilities has been unsuccessful and is no longer an option.

China has seen its semiconductor industry crippled by the Biden administration’s restrictions on the export of advanced chips, while a trilateral agreement among the US, Japan and the Netherlands is set to prevent it from acquiring the latest chipmaking equipment. Analysts say China needs to accelerate the development of homegrown replacements, but warn that there are bound to be bouts of pain in replacing equipment with domestic alternatives. However, industry executives are cautious about how receptive the Chinese government will be to the industry’s concerns, with some suggesting that officials and investors only listen to good news.

Despite the challenges, China’s shift toward closer co-operation with select companies in the semiconductor industry is a significant step forward. The creation of a new Communist party science commission and a reinvigorated Ministry of Science and Technology demonstrate Beijing’s commitment to developing the sector, and giving more power to successful chip companies could help China achieve its goals.

However, some experts have expressed concern that China’s previous policies of massive subsidisation could have negative long-term effects. The country’s drive to build up domestic capabilities in the semiconductor industry has led to overinvestment in some areas, resulting in a surplus of production capacity and a lack of focus on the most advanced technologies. This, combined with the US restrictions on access to advanced technology, has created a challenging environment for China’s semiconductor industry.

Nonetheless, China remains committed to developing the sector, which is seen as a critical component of the country’s future economic growth. The country has made significant investments in domestic chip companies and is working to build up its domestic manufacturing capabilities, with the aim of reducing its reliance on foreign suppliers.

The success of China’s efforts to develop the semiconductor industry will depend on a variety of factors, including the ability of its domestic companies to innovate and compete in the global market, as well as the support provided by the government. If China can strike the right balance between government intervention and market forces, it may be able to establish itself as a major player in the global semiconductor industry.

Another factor that could play a critical role in China’s semiconductor industry is the country’s ability to attract and retain talent. In recent years, the Chinese government has made significant efforts to lure top talent from around the world, offering generous incentives and support for researchers and entrepreneurs. However, some experts have raised concerns about the country’s treatment of foreign workers and its approach to intellectual property rights, which could deter foreign talent from working in China’s tech sector.

China’s semiconductor industry is also facing increasing competition from other countries, particularly in Asia. South Korea, Taiwan, and Japan have long been major players in the global semiconductor market, and these countries are investing heavily in new technologies such as AI, 5G, and the Internet of Things. In addition, other emerging economies such as India and Vietnam are also looking to develop their semiconductor industries, presenting a further challenge to China’s efforts to establish itself as a global leader in the field.

Despite these challenges, China’s semiconductor industry has significant potential for growth and innovation. The country has a large and rapidly growing market for consumer electronics and other high-tech products, which could provide a boost for domestic chip companies. In addition, China’s government has demonstrated a strong commitment to developing the sector, which could lead to new funding opportunities and support for research and development.

Overall, the shift toward closer co-operation with select companies in the semiconductor industry is a significant development for China’s tech sector. While the country faces numerous challenges in building up its domestic capabilities, its commitment to innovation and investment could help to establish it as a major player in the global semiconductor market in the years ahead.