China builds its own chip market amid US sanctions

What happened?

The United States has progressively tightened restrictions on the export of advanced semiconductors and manufacturing equipment to China, aiming to curb its technological and military advancement. However, far from paralyzing China's industry, these measures are catalyzing the creation of a domestic chip market. Huawei, through its HiSilicon division, has developed the Ascend 950 processor family, which is already being adopted by Chinese tech giants such as ByteDance, Alibaba, and Tencent. According to Tom's Hardware, ByteDance has committed $5.6 billion to the Ascend 950PR, and Huawei expects to generate $12 billion in AI chip revenue this year. This move is not isolated: since 2022, when the US imposed export controls on AI chips like the NVIDIA A100 and H100, China has accelerated its semiconductor investments. The Chinese government has allocated over $140 billion through the National Integrated Circuit Industry Investment Fund (known as the 'Big Fund') to boost self-sufficiency. SMIC (Semiconductor Manufacturing International Corporation) is already producing 7nm chips, albeit with lower yields than TSMC.

In parallel, Russia is turning to China to meet its semiconductor needs due to Western sanctions blocking its access to advanced hardware. Sberbank, Russia's largest bank, is seeking to acquire Chinese chips to run its AI model GigaChat. According to Tom's Hardware, the most likely candidate is Huawei's Ascend 950. State-owned company Tramplin Electronics is already marketing a processor based on Loongson Technology designs, and Element, Russia's largest chipmaker, has begun producing microchips in China for the local automotive market. This Sino-Russian alliance is not new: in 2023, Russia imported over $1 billion in Chinese semiconductors, a 40% increase from the previous year, according to Russian customs data.

Why is it important?

This move has deep geopolitical and economic implications. The creation of an independent semiconductor ecosystem in China reduces the effectiveness of US sanctions and could lead to a parallel technology bloc led by Beijing. If Russia and other sanctioned countries integrate into this supply chain, an alliance capable of competing with Western dominance in critical technologies such as artificial intelligence, high-performance computing, and defense would form. According to Allen Maggard, senior analyst at C4ADS, 'economic restrictions are pushing Russia toward Chinese computing solutions,' and he sees no scenario where Russia can scale its domestic computing capacity with Western solutions alone.

Moreover, China's domestic demand is already driving rapid innovation and cost reduction in its own chips. For example, Huawei's Ascend 910B, launched in 2023, offers performance comparable to the NVIDIA A100 in certain AI workloads, according to benchmark tests. This could make them attractive to emerging markets seeking cheaper alternatives to US products. NVIDIA's share of the Chinese AI chip market has fallen from about 90% in 2022 to less than 50% in 2025, according to industry estimates, eroding its competitive advantage.

Consequences for companies and users

For global tech companies, the emergence of a Chinese chip market means increased competition and potential supply chain disruptions. Companies that rely on advanced chips could face higher costs or access restrictions if geopolitical tensions escalate. For instance, companies like Amazon Web Services and Microsoft Azure, which use NVIDIA for their data centers, could see price increases if chip demand outstrips supply due to market fragmentation. On the other hand, end users could benefit from greater product diversity and potentially lower prices in the long run, albeit with quality and security risks. In China, the government has established cybersecurity standards for domestic chips, but doubts about potential backdoors persist.

For startups and AI companies, the availability of alternative chips like Huawei's Ascend could reduce dependence on NVIDIA, but would also require adapting their software to new architectures, incurring migration costs. For example, Huawei's software ecosystem (CANN) is not directly compatible with NVIDIA's CUDA, requiring code rewriting. However, Huawei has invested in migration tools and partnerships with software companies to ease the transition.

What should readers know?

It is important to understand that while China is advancing in chip manufacturing, it still lags behind world leaders like TSMC and Samsung in advanced nodes (sub-7nm). SMIC only produces 7nm chips with an estimated yield of 50% compared to TSMC's 90%, according to analysts at SemiAnalysis. However, the combination of massive domestic demand, state investment, and collaboration with Russia is accelerating development. China is not expected to achieve technological parity in the short term, but it is likely to consolidate a self-sufficient ecosystem for many applications, especially in AI and consumer electronics.

Analysts note that the Sino-Russian alliance is not one of equals: Russia is becoming a dependent customer of Chinese technology, giving Beijing a dominant position. In the long run, this could reshape global technology alliances and reduce US influence in the sector. The Biden administration has responded by further tightening restrictions, including export controls on chip manufacturing equipment to China, but these measures have also spurred Chinese companies like Naura Technology and AMEC to develop local alternatives. In summary, the current scenario is a global technology race where sanctions are accelerating the creation of a parallel ecosystem, with implications that extend beyond the semiconductor industry.