China narrows chip gap with Korea, Taiwan through rapid advances

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Leveraging its massive domestic market and substantial government subsidies, China is shaking up the semiconductor market, which has long been dominated by South Korea, Taiwan, and the United States.

Chinese chipmakers are making notable advancements, even in the advanced semiconductor sectors, led by companies such as Semiconductor Manufacturing International Corp. (SMIC), NAND-specialized Yangtze Memory Technologies Corp. (YMTC), DRAM-specialized ChangXin Memory Technologies Inc. (CXMT), fabless HiSilicon, and Internet of Things (IoT) chipmaker UNISOC.

SMIC, in particular, reported record quarterly earnings in the third quarter of this year, with revenue rising 34 percent on year to $2.17 billion and operating profit surging 94 percent to $169.9 million.

DRAM manufacturers like CXMT and Fujian Jinhua Integrated Circuit Co. are aggressively lowering DDR4 prices, offering chips up to 50 percent cheaper than those from Samsung Electronics Co. and SK hynix Inc.

Chinese firms are also attracting top talent from Korea and Taiwan, further accelerating their growth. “Taiwan Semiconductor Manufacturing Co. (TSMC) now considers SMIC its primary competitor, as many of TSMC’s key R&D and process engineering staff have since been recruited by SMIC,” said Professor Kwon Seok-joon of Sungkyunkwan University.

Despite facing U.S. export restrictions on advanced equipment, SMIC has achieved technological milestones, including the successful development of a 7-nanometer process similar to TSMC‘s first-generation 7-nanometer process from 2018–2019.

While yield issues persist and the company remains behind Korea and Taiwan in advanced processes, the technological gap has narrowed significantly for a company founded in 2000.

Professor Kwon predicts that China’s foundry industry, led by SMIC, could double or triple its market share in 10-nanometer and above as well as mid-tech processes within the next decade.

With continued government subsidies and strategic investments, SMIC may rival TSMC by the mid-2030s, Kwon said.

SMIC is also expanding beyond foundries into memory production, aiming to become an integrated device manufacturer (IDM) like Samsung Electronics.

SMIC established its memory subsidiary, Semiconductor Global Solutions (SGS), in 2018 and has recruited many engineers from Samsung Electronics and SK hynix, currently accelerating DRAM development in Pudong and Ningbo.

In the global foundry market, TSMC holds a 62.3 percent share, followed by Samsung Electronics at 11.5 percent and SMIC at 5.7 percent, according to TrendForce.

In the memory sector, Chinese companies are dominating the market with volume on DDR4 and are also working on mass-production of DDR5. CXMT is focusing on low-end memory, such as 17-18nm-based DDR and LPDDR4X, a low-power DRAM.

They are rapidly scaling production.

CXMT has increased its wafer production capacity from 40,000 per month in 2020 to 200,000 in 2024 and is expected to surpass a 10 percent global DRAM market share this year, according to Morgan Stanley.

Professor Kwon said industry insiders assess the technological gap between CXMT and Samsung Electronics is now 1.5 years or less, adding that YMTC and other NAND companies are also narrowing the gap with industry leaders to less than one year.

TrendForce forecasts that DRAM production next year will increase by 25 percent from this year due to China‘s expanded capacity.

“China’s expansion of DRAM production is the biggest risk factor for Korean semiconductor companies,” said Kim Hyun-jae, professor at Yonsei University.

Industry concerns are growing over potential market disruptions caused by China‘s heavily subsidized, low-cost chips, particularly in legacy semiconductors used in consumer electronics, automobiles, and industrial equipment. These products account for 75 percent of global semiconductor demand.

“There is growing demand for Chinese chips for cost cutting,” said one industry insider. “This trend may change the entire market structure.”