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China making more advanced chips — but Beijing still faces challenges

Chip industry sits between a need for globalization and a need to protect national security: Expert

A Chinese flag next to a printed circuit board with semiconductor chips.

Florence Lo | Reuters

China’s biggest chipmaker SMIC seems to have been manufacturing advanced chips in the last few months — defying U.S. sanctions designed to slow down Beijing’s progress.

But there are still some major challenges to China’s bid to become more self-sufficient in the semiconductor industry, with questions swirling around the long-term viability of its latest advancements.

What’s the latest?

Why is this a big deal?

How is SMIC doing this?

Without EUV tools, experts thought, SMIC would find it difficult to make 7 nanometer and smaller chips, or would at least find it expensive to do so.

So when the Huawei Mate 60 came out last year with a 7 nanometer chip, that raised a lot of eyebrows.

One expert told CNBC at the time that SMIC is likely using older chipmaking tools to make more advanced chips.

The FT reported something similar last week. The newspaper, citing two people with knowledge of the plans, reported that SMIC is aiming to use its existing stock of U.S.- and Dutch-made semiconductor equipment to produce 5 nanometer chips, an advancement on the 7 nanometer.

“SMIC is working very closely now with both domestic tool makers, leveraging its existing base of advanced lithography gear, and drawing on other outside expertise, such as from Huawei, to constantly improve yields on advanced node processes,” Paul Triolo, an associate partner at consulting firm Albright Stonebridge, told CNBC via email.

“So for now it is possible for SMIC to continue to improve capabilities and yields at 7 and soon 5 nm, for a small number of customers, mostly Huawei.”

China’s challenges

Using older equipment to make more advanced chips poses two major…

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