China’s SMIC to Double 7nm Capacity as Beijing Defies US Export Controls
Semiconductor Manufacturing International Corp plans to expand advanced chip production fivefold by 2027, validating faster-than-expected indigenous progress despite Western restrictions.
China aims to increase production of 7nm chips to 100,000 wafers per month within two years, up from fewer than 20,000 currently, as state-backed foundries accelerate efforts to achieve semiconductor self-sufficiency.
TrendForce reports Beijing has set a more ambitious target of adding 500,000 wafers of monthly capacity by 2030. The push centers on Semiconductor Manufacturing International Corp (SMIC), which plans to double its 7nm production capability in 2026 after posting 35.6% net profit growth in the first half of 2025, reaching $321 million on revenue of $4.46 billion.
The expansion validates concerns that US Export Controls implemented in October 2022 have accelerated rather than arrested China’s semiconductor capabilities. Financial Times sources indicate SMIC is developing what industry analysts describe as “5-nanometer-like” technology using less advanced deep ultraviolet lithography equipment with multiple patterning techniques, circumventing restrictions on ASML’s extreme ultraviolet systems.
Manufacturing Without EUV: Higher Costs, Lower Yields
SMIC has achieved 7nm production using 193nm immersion lithography coupled with multi-patterning, a process that adds complexity and cost but bypasses the need for cutting-edge EUV tools. TechInsights confirmed the company’s 7nm process reaches true 7nm node standards based on teardown analysis of Huawei’s Kirin 9000s chip.
The approach carries penalties. Financial Times reported SMIC charges 40% to 50% more for 7nm products than TSMC at equivalent nodes, citing three sources close to Chinese chip companies. TD Cowen analysts estimate SMIC’s 7nm yields have improved to 60-70% from below 40% at initial launch in late 2023, though this remains well below TSMC’s mature process yields.
| Metric | SMIC | TSMC |
|---|---|---|
| Current Capacity | ~20,000 wspm | N/A (legacy node) |
| Yield Rate | 60-70% | >90% (typical) |
| Price Premium | +40-50% vs TSMC | Baseline |
| Equipment | DUV multi-patterning | EUV single-pass |
Despite cost disadvantages, demand from domestic customers including Huawei provides SMIC with a captive market willing to absorb premium pricing. Huawei has procured approximately 15,000 wafers per month of SMIC’s 20,000 wspm 7nm capacity, according to supply chain checks by TD Cowen.
Foundry Market Share Dynamics Shift
SMIC ranked third globally in third-quarter 2025 foundry revenue, trailing only TSMC and Samsung, per TrendForce. The Chinese foundry held 6.0% market share in Q1 2025, narrowing the gap with Samsung Foundry, which has seen share decline from 9.1% in Q4 2024 to 7.7% in Q1 2025.
TSMC maintains a commanding 67.6% share, but SMIC’s trajectory suggests potential displacement of Samsung as the second-largest foundry within 18-24 months if current trends persist. The competitive positioning has significant implications for Samsung, which faces margin pressure from both TSMC’s technological lead and SMIC’s government-subsidized pricing.
“SMIC benefited from early stocking in response to both U.S. tariffs and Chinese subsidies. This helped mitigate ASP declines, resulting in a 1.8% revenue increase to $2.25 billion.”
— TrendForce, Q1 2025 Foundry Report
Hua Hong Semiconductor, previously focused on mature nodes, has joined the advanced production push with government backing. The company placed seventh in global foundry rankings in Q3 2025 with over $1.21 billion in revenue and 2.6% market share, moving into competition with established players including GlobalFoundries and UMC.
Export Control Efficacy Under Question
The pace of Chinese advancement contradicts Western policymaker expectations when export controls targeting 14-16nm and below nodes were implemented. Research from the Center for Strategic and International Studies notes the restrictions have prompted China to implement an all-out, government-backed effort resulting in “startling achievements” including sub-10nm production capability.
US semiconductor equipment makers have lost substantial revenue from curtailed China sales. An ITIF economic model estimates US firms could lose $77 billion in initial-year sales from hypothetical full decoupling, reducing R&D funding that sustains technological leadership. Meanwhile, China is producing twice as many research papers on chip design and production as the United States, according to Georgetown University’s Emerging Technology Observatory.
The controls have proven effective in limiting access to EUV lithography—ASML compliance has prevented SMIC from acquiring systems that would dramatically improve yield and cost economics. But the Chinese response demonstrates that trailing-edge equipment combined with state subsidies can achieve nodes previously thought to require EUV technology, albeit at commercial disadvantage.
Supply Chain Bifurcation Accelerates
The development crystallizes the bifurcation of semiconductor Supply Chains into Western and Chinese spheres. Tech OEMs dependent on cutting-edge nodes for AI applications remain locked into TSMC and Samsung, but Chinese domestic demand for 7nm-class chips in smartphones, AI accelerators, and automotive applications is increasingly serviced by SMIC without Western foundry exposure.
- TSMC and Samsung face divergent pressures: TSMC from geopolitical concentration risk in Taiwan, Samsung from margin compression as SMIC captures share in mature advanced nodes
- ASML’s 29% China revenue exposure (2023 figure) creates misaligned incentives with US policy objectives, complicating multilateral control coordination
- Chinese advancement at 7nm reduces economic interdependence that previously constrained cross-strait conflict calculations
- Trailing-edge oversupply from Chinese capacity additions will pressure GlobalFoundries, UMC, and other pure-play foundries in 28nm-14nm segments
China’s 15th Five-Year Plan covering 2026-2030 prioritizes advanced logic process nodes, memory industry expansion, and localization of core equipment. The Yole Group estimates SMIC’s advanced node capacity will reach only 10,000 wspm in 2026 absent the acceleration now reported, suggesting recent targets represent material upward revision to indigenous roadmaps.
Big Fund III, launched in 2024, is expected to channel significant resources into advanced logic and memory capacity buildouts. YMTC is projected to reach 300,000 wspm within three years, while SMIC is establishing baseline processes using domestically sourced wafer fab equipment at its FAB3 facility, representing early steps toward supply chain independence.
What to Watch
Monitor SMIC’s ability to sustain 7nm yield improvements above 70% and whether 5nm-class production enters commercial volume by late 2026. Capacity utilization rates at the Shanghai, Shenzhen, and Beijing advanced node fabs will indicate whether demand from Huawei and domestic AI chip designers can absorb planned output increases without destabilizing pricing.
Track whether the Trump administration implements further export control escalation targeting production equipment already installed in Chinese fabs or restricts US persons from providing technical support, which could slow but not halt the trajectory. Any tightening of Foreign Direct Product Rule enforcement affecting non-US suppliers will test allied coordination, particularly Dutch and Japanese willingness to further restrict ASML and Tokyo Electron sales.
Watch for TSMC pricing adjustments at 7nm and 5nm nodes as China adds supply, potentially compressing margins across the foundry sector. Samsung’s 2nm yield trajectory and customer wins will determine whether it can sustain second-place positioning or faces displacement by SMIC in the 2026-2027 period. The timeline for Chinese domestic EUV development remains the critical variable—any breakthrough collapses the cost disadvantage and fundamentally alters competitive dynamics.