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Beijing’s chip factories produced more semiconductors in 2024 than ever before, but the headline number conceals a messier reality: collapsing foundry profits, a $47.5 billion state fund bankrolling the buildout, and a secret Shenzhen laboratory where former ASML engineers are assembling something the West spent years trying to prevent.
Record Output, Razor-Thin Margins
China’s Ministry of Industry and Information Technology reported that semiconductor production hit 484.3 billion units in 2024, up 85.2 percent from 2020. Integrated circuit output alone reached 4,514 billion units — a 22.2 percent year-on-year increase and the fastest-growing major product category in China’s electronics sector. IC exports hit $159.5 billion, up 17.4 percent and surpassing mobile phones as the country’s top electronics export for the first time, according to customs data reported by TrendForce.
The surge is concentrated in legacy chips — semiconductors at 28 nanometres or older — deliberately excluded from U.S. export controls. TrendForce projects China’s share of global mature-process capacity will grow from 34 percent in 2024 to 47 percent by 2027, overtaking Taiwan. SEMI estimates Chinese manufacturers added 18 new fabs in 2024 alone, with 26 new facilities expected between 2022 and 2026 — more than any other country, per ITIF analysis.
But volume is crushing margins. SMIC, China’s largest foundry and the world’s third-largest since Q1 2024 (per Counterpoint Research), posted $8.03 billion in revenue — up 27 percent — yet net profit collapsed 45.4 percent to $493 million, according to its Hong Kong exchange filing. Hua Hong Semiconductor fared worse: profit cratered 79.2 percent to $58 million. For context, TSMC earned $35 billion in net profit — roughly 70 times SMIC’s figure on 12 times the revenue. The margin compression reflects what happens when subsidy-driven output targets override profit discipline.
The State Bankroll
Beijing launched the third phase of its National IC Fund in May 2024 with 344 billion yuan ($47.5 billion) in registered capital — the largest tranche yet. The Ministry of Finance holds 17 percent alongside ICBC, China Construction Bank, and China Mobile, per SIA’s analysis. Phase 3 targets advanced manufacturing, AI chips, and high-bandwidth memory. Cumulative National IC Fund deployments now total $47.7 billion across three phases. Separately, China spent $41 billion on wafer fabrication equipment in 2024 — roughly 40 percent of all such purchases worldwide.
The Shenzhen Prototype
The most consequential development may not appear in any production data. In December 2025, Reuters reported that engineers — including former ASML employees recruited with bonuses up to 5 million yuan — completed a prototype extreme ultraviolet lithography machine in a high-security Shenzhen facility. The prototype generates 13.5-nanometre EUV light but has not yet produced working chips. Beijing targets 2028 for chip production; sources closer to the project told Reuters that 2030 is more realistic.
EUV lithography is the single most critical chokepoint in advanced chipmaking, controlled exclusively by ASML, whose machines cost roughly $250 million each. No EUV system has ever been sold to China. A March 2025 paper published by the Chinese Laser Press reported that the team achieved 3.42 percent conversion efficiency — exceeding the 3.2 percent achieved by the Netherlands’ own ARCNL in 2019. Morningstar analyst Javier Correonero cautioned that converting lab-scale EUV into viable manufacturing could take years or decades. But the prototype’s existence has already rattled the assumption that export controls represent a permanent barrier.
The Import Paradox
For all the production milestones, China imported 549.2 billion integrated circuits worth $385 billion in 2024 — more than its $325 billion crude oil import bill — according to General Administration of Customs data reported by SCMP. Much of the surge reflected stockpiling ahead of tighter Biden-era controls. ITIF estimates China remains roughly five years behind global leaders in leading-edge logic chips. SMIC can produce 7 nm using DUV double-patterning for Huawei’s Kirin processors, but the process is slow and expensive. Meanwhile, TSMC is moving into sub-2 nm nodes with ASML’s next-generation High-NA EUV, and the ongoing recalibration of U.S. trade policy may reshape the export-control framework entirely.
The production numbers say China is building the factory. The profit numbers say it hasn’t figured out the business model. And the Shenzhen laboratory says it isn’t planning to stop.
