China Struggles to Catch Up in Chip Production Despite Massive Investments

Chinese firms lag foreign competitors in advanced chip manufacturing, hampering the country's AI ambitions

Published on Feb. 14, 2026

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China has poured over $150 billion into building a domestic semiconductor industry over the past decade, but its chip makers are still producing far fewer and lower-performing chips compared to foreign rivals like Nvidia, TSMC, and Samsung. This chip shortage is holding back the growth of China's booming AI sector, which relies heavily on advanced semiconductors. While the Chinese government has pushed for self-sufficiency, U.S. export controls have limited access to crucial chip-making equipment, slowing China's progress.

Why it matters

China's inability to produce enough high-performance chips domestically poses a major challenge to its ambitions of technological self-reliance and global leadership in strategic industries like AI. The chip shortage threatens to undermine the rapid growth of China's AI sector, which has been fueled by massive government and private investment. This dynamic highlights the continued dependence of Chinese tech firms on foreign semiconductor technology.

The details

Despite over a decade of government support and over $150 billion in investment, Chinese chip makers are producing just a small fraction of the advanced semiconductors made by foreign firms like Nvidia, TSMC, and Samsung. Huawei, a leader in China's chip development efforts, has said it will need nearly two more years to match the performance of current Nvidia chips. The lack of access to crucial chip-making equipment from Dutch firm ASML, due to U.S. export controls, is a major bottleneck holding back Chinese chip production. This shortage of advanced chips is constraining the growth of China's booming AI industry, which relies heavily on powerful semiconductors for the massive computing power required.

  • China began its push to build a domestic semiconductor industry over a decade ago in 2014.
  • In 2017, the U.S. government's actions against Chinese telecom giant ZTE provided another impetus for China's self-sufficiency drive.
  • In 2026, Chinese chip makers are expected to produce just a small fraction of the advanced AI chips made by foreign competitors.

The players

Huawei

A leading Chinese telecommunications and electronics company that has become a key player in China's efforts to develop its domestic semiconductor industry.

Semiconductor Manufacturing International Company (SMIC)

China's most advanced domestic chip maker, which has struggled to produce enough high-quality chips to meet demand from Chinese AI companies.

ASML

A Dutch company that produces the advanced chip-making equipment that is crucial for producing the most cutting-edge semiconductors, but which has been restricted from selling its technology to China.

Nvidia

A U.S. semiconductor company that makes high-performance chips used in AI systems, and whose technology Chinese firms are still struggling to match.

Taiwan Semiconductor Manufacturing Company (TSMC)

The world's largest contract chip maker, which dominates production of the most advanced semiconductors and is a key supplier to Chinese tech firms.

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What they’re saying

“Even the national champion is fighting an uphill battle.”

— Xiaomeng Lu, Director, Eurasia Group (New York Times)

“Huawei's experience was a microcosm of China's broader experience: suddenly being cut off and now scrambling to build its own.”

— Kyle Chan, Fellow, Brookings Institution (New York Times)

What’s next

The outcome of ongoing U.S.-China trade negotiations, including discussions around semiconductor technology exports, will be a key factor in determining whether China can make further progress in catching up to foreign chip makers in the coming years.

The takeaway

China's struggle to develop a self-sufficient semiconductor industry despite massive government investment highlights the technological gap between Chinese and foreign chip makers, as well as the continued vulnerability of Chinese tech firms to disruptions in access to critical foreign semiconductor technology.