China's Semiconductor Industry Still Lagging Behind Korea... Accelerating Technological Independence [The Reality of China's Technological Capabilities?]①

Editor's Note'Made in China 2025' is a national industrial strategy announced by the Chinese government in 2015, aiming to leap forward as a global manufacturing powerhouse through the advancement of manufacturing industries. It selects 10 key core industries including semiconductors, aerospace, shipbuilding, automobiles, and robotics to promote technological self-reliance, with the ultimate goal of becoming number one globally. Although South Korea has traditionally been a manufacturing powerhouse, there is an assessment that China has rapidly narrowed the gap or even surpassed South Korea in some fields through massive government-led investments, technology acquisition, and talent recruitment. Through a total of five planned articles, we aim to analyze how far China's manufacturing industry has grown.

On the 19th of last month, a domestic report heated up the semiconductor industry. In the 'In-depth Analysis of Technology Levels in Three Major Game-Changer Fields' brief released by the Korea Institute of S&T Evaluation and Planning (KISTEP), expert survey results revealed that South Korea's semiconductor technology has mostly been overtaken by China. Opinions were divided within the domestic industry. On one side, there were warnings about China's rapid growth and South Korea's crisis, while on the other, there were counterarguments that South Korea still holds an advantage in advanced semiconductor core technologies. So, how far has China's semiconductor technology advanced, and how much has the gap with South Korea actually narrowed?

Has South Korea's Semiconductor Technology Mostly Been Surpassed by China? Evaluations from Local Companies

A senior executive of Chinese semiconductor agent company WPG Holdings recently told Asia Economy in a phone interview, "Among the approximately 260 targets set in the 'Made in China 2025' plan, China has only achieved some goals in fields such as robotics technology, agricultural equipment, biopharmaceuticals, and marine engineering," adding, "China still faces challenges in areas like new materials and semiconductors."

He continued, "Due to the three-year pandemic causing massive economic losses, subsequent research investment expenditures were severely impacted, and overall innovation was lacking. Even optimistically, it is estimated that about 35% of the targets have been achieved."

Specifically regarding China's semiconductor technology level, he analyzed, "It is impossible for China to surpass South Korea's current semiconductor level in the short term, and if US-China relations continue to deteriorate, it will take at least more than 10 years."

Overseas market research agencies have expressed similar views. Canadian research firm TechInsights analyzed that as of 2023, China's semiconductor self-sufficiency rate is only 23%. IC Insights also reported that China's semiconductor self-sufficiency rate was 16.7% in 2021 and is expected to reach about 21.2% by 2026.

These figures fall far short of the 'Made in China 2025' goal to raise the semiconductor self-sufficiency rate to 70% by this year. Despite China's significant efforts to improve semiconductor industry self-sufficiency, a considerable gap still exists.

In terms of global semiconductor market share, China still shows a gap compared to leading countries. As of 2022, China's semiconductor market share was about 3.4%, which is still lower than South Korea (17.7%), Japan (8.6%), and the United States (52%).

This is interpreted as a sign that the US export restrictions on semiconductors to China are effective. Since 2022, the US has banned exports of advanced semiconductor manufacturing equipment, including extreme ultraviolet (EUV) lithography machines, to China, which still relies on deep ultraviolet (DUV) process-based semiconductor production.

The US has also started supply chain investigations targeting domestic companies to check procurement of legacy semiconductors from China, extending regulations from advanced semiconductors to legacy sectors.

Another local industry insider evaluated, "China's technology has improved compared to before, but there is still a large gap due to the ongoing deterioration of the US-China trade war and the resulting halt in talent exchange. There is also a shortage of high-end semiconductor chip designers and talent capable of planning high-end products, and the semiconductor value chain remains relatively weak, making it difficult to compete directly with global major companies."

China's Aggressive Investment... Full-Scale Challenge in AI Semiconductors and More

South Korea still maintains world-class technology in advanced fine processes (below 3 nm), high bandwidth memory (HBM), and DRAM. Some analysts suggest that China, based on aggressive investment and full government support, is rapidly narrowing the technology gap and may reach a level that threatens South Korea in some fields.

In fact, China's foundry company SMIC is analyzed to have succeeded in producing 7 nm process chips. Previously, China's semiconductor manufacturing technology was limited to around 14 nm, but the 7 nm chips used in Huawei's smartphone 'Mate' series are believed to have been produced by SMIC, attracting industry attention. Although a gap remains as Samsung Electronics and TSMC are advancing toward 2 nm processes, this achievement is significant given it was accomplished amid US export controls and sanctions.

YMTC has also mass-produced 3D NAND flash products with over 128 layers using its self-developed Xtacking technology. Last year, foreign media reported that a 160-layer 512GB TLC (Triple Level Cell) memory chip was found inside YMTC's consumer brand 'Ztai T Plus' solid-state drive (SSD).

Last year, the Chinese government established the third phase of the National Integrated Circuit Industry Investment Fund (known as the Big Fund) worth 344 billion yuan (approximately 66.4 trillion KRW) to foster the semiconductor industry. This fund will be intensively invested in high-spec semiconductor technology self-reliance and AI semiconductor research and development.

Amid such support, Chinese companies' growth in the AI semiconductor market is also remarkable. The emergence of DeepSeek, known as the 'cost-effective AI monster,' is cited as a representative example of this trend. Unlike existing AI model development, which heavily depended on high-performance semiconductors, DeepSeek attracted attention by implementing ChatGPT-like performance at minimal cost through software parallel computation optimization technology. This demonstrates that Chinese semiconductor companies' strategies to avoid falling behind in the global AI competition despite US advanced semiconductor export restrictions are proving effective.

Additionally, Chinese AI semiconductor companies such as Biren Technology and Cambricon have rapidly grown by attracting cumulative investments of 12 billion yuan (about 2.2 trillion KRW) by the first half of 2024. Huawei is also reported to have significantly improved production efficiency by raising the yield of its self-produced Ascend 910C AI chip to 40%.

These technological advances and large-scale investments play a key role in strengthening China's competitiveness in the artificial intelligence (AI) semiconductor market and are expected to influence the future global AI semiconductor competition landscape. Dan Wang, a Chinese technology expert and professor at Yale Law School, analyzed, "Even if China does not achieve all its goals, it should focus on improving self-sufficiency and narrowing the technology gap. Especially in new fields like AI semiconductors, the gap with advanced countries is narrowing."