- 24
- March
When the US cut China off from the advanced chip supply chain, banned the sale of AI GPUs, and pressured allies to join the sanctions — many believed China would be left behind. But what actually happened was the opposite: China invested over $97 billion in semiconductors, built an operating system to replace Android, and developed AI that shook the global industry — all within less than 7 years.
Key Takeaways
- Made in China 2025 + Big Fund $97B: Invested in semiconductors nearly twice as much as the US CHIPS Act
- Huawei's comeback: Cut off from TSMC but built 7nm chips with SMIC + created HarmonyOS with 17% market share in China
- DeepSeek shakes the world: AI trained for just $5.6 million that competes with GPT-4
- Xinchuang: Mandated replacement of SAP/Oracle with Kingdee/Yonyou across all government agencies
- BYD + CATL: Dominating the global EV and battery markets — NEVs surpassed 50% of new car sales in China
Made in China 2025 — The Master Plan That Changed Everything
In May 2015, Premier Li Keqiang announced the Made in China 2025 plan — a national strategy aimed at transforming China from the "world's factory" into an "advanced manufacturing superpower" by 2025 and reforming all industries by 2049 (the 100th anniversary of the People's Republic of China).
The plan identified 10 target industries — spanning next-generation IT, robotics, aerospace, high-speed rail, electric vehicles, energy equipment, agricultural machinery, new materials, and biopharmaceuticals — with a target for 70% self-sufficiency in core components by 2025.
"The more pressure applied, the more investment accelerated — every US sanction became a catalyst for China to pour even more money into domestic technology development."
Big Fund — The World's Largest Semiconductor Fund
At the heart of the strategy is the National Integrated Circuit Industry Investment Fund, known as the "Big Fund" — investing in Chinese semiconductors across 3 phases:
| Phase | Year | Value | Key Objectives |
|---|---|---|---|
| Phase I | 2014 | $21 billion | Invested in SMIC, YMTC, CXMT (chip fabrication plants) |
| Phase II | 2019 | $29 billion | Focused on manufacturing equipment, materials, and EDA tools |
| Phase III | 2024 | $47.5 billion | The largest semiconductor fund in world history |
| Total (3 Phases) | $97.5 billion (nearly twice the US CHIPS Act's $52.7 billion) | ||
This does not include investments from local governments and government-backed VC funds (Government Guidance Funds) — over 2,000 funds with a combined value of 12 trillion yuan (~$1.7 trillion) — a figure no other country can match.
Timeline: From Sanctions to Self-Reliance
| Year | Key Event |
|---|---|
| 2015 | Made in China 2025 announced |
| 2018 | US sanctions ZTE — $1.4 billion fine (first warning signal) |
| 2019 | Huawei placed on Entity List → Google cuts Android/GMS → Huawei announces HarmonyOS |
| 2020 | TSMC stops manufacturing chips for Huawei / Dual Circulation strategy announced / Xinchuang accelerates |
| 2022 | US passes CHIPS Act + bans sale of advanced chips to China (BIS Export Controls) |
| 2023 | Huawei Mate 60 Pro uses Kirin 9000s chip (7nm) manufactured by SMIC — proving China can do it without the West |
| 2024 | Big Fund Phase III ($47.5 billion) / BYD sells 4.27 million vehicles / NEV exceeds 50% |
| 2025 | DeepSeek-R1 launches — Chinese AI shakes the global AI industry / NVIDIA stock drops $600 billion in a single day |
Semiconductors — The Main Battleground of the Tech War
Semiconductors are the "oil" of the digital age — whoever controls them controls all industries. The US therefore chose to strike here first.
US Restrictive Measures
- October 2022: Banned sale of advanced chips (NVIDIA A100/H100) to China
- Banned sale of advanced lithography machines from ASML (Netherlands) — EUV machines used to produce chips below 7nm
- Banned US citizens from working at Chinese chip fabs using advanced technology
- December 2024: Added 140+ more Chinese companies to the Entity List
How Did China Respond?
Case Study: Huawei — From Cut Off to Comeback
- Before sanctions: Huawei used TSMC to manufacture Kirin chips that competed with Qualcomm
- 2020: TSMC stopped production → Huawei's revenue dropped from 891 billion yuan to 642 billion yuan
- 2023: Mate 60 Pro uses Kirin 9000s chip manufactured by SMIC using DUV multi-patterning at 7nm — proving it can be done without EUV
- 2024: Revenue recovered to 862 billion yuan + built HarmonyOS NEXT that completely removed Android
SMIC (China's chip foundry) used "multi-patterning" techniques with older DUV machines instead of EUV — successfully producing chips at 7nm. Although yields are lower and costs higher, it proved that sanctions cannot stop China.
Additionally, China is investing massively in "mature node" chip production capacity (28nm and above) — which is not subject to export restrictions. China is expected to control over 50% of global mature node production capacity by 2027.
AI — The Turning Point That Shocked the World
If the Huawei Mate 60 Pro was the victory in the chip war, DeepSeek-R1 was the victory in the AI war.
DeepSeek — The AI That Shook Silicon Valley
- Founded in 2023 by Liang Wenfeng (founder of hedge fund High-Flyer)
- DeepSeek-V3 (Dec 2024): 671 billion parameter MoE model — trained at a cost of just $5.6 million (compared to GPT-4's estimated $100+ million)
- DeepSeek-R1 (Jan 2025): Reasoning model that scored equal to or better than OpenAI o1 on multiple benchmarks
- Trained on Huawei Ascend 910B + NVIDIA A100 chips stockpiled before sanctions
- Impact: NVIDIA stock dropped ~$600 billion on January 27, 2025 — as investors feared Chinese AI could match performance at a fraction of the cost
China's AI Ecosystem
| Company | AI Model | Key Strength |
|---|---|---|
| DeepSeek | DeepSeek-R1 | GPT-4 level reasoning at low cost + Open Source |
| Baidu | ERNIE 4.0 | 200M+ users / integrated with Baidu Search & Cloud |
| Alibaba | Qwen 2.5 | Leading Open Source / globally competitive |
| Zhipu AI | GLM Series | From Tsinghua University |
| 01.AI | Yi Series | Founded by Kai-Fu Lee |
What is noteworthy is that China uses Open Source as a strategy — DeepSeek, Qwen, and GLM are all open source, enabling rapid ecosystem growth and reducing dependence on foreign technology.
EVs and Batteries — Dominating the Global Market
Beyond chips and AI, the electric vehicle (EV) industry is another battleground where China has won decisively:
| Metric | Figure |
|---|---|
| BYD sales in 2024 | 4.27 million vehicles (world's largest EV manufacturer) |
| CATL global EV battery market share | ~37% (supplies Tesla, BMW, Mercedes, VW) |
| NEVs in China (2024) | Exceeded 50% of new car sales for the first time |
| China's share of global EV market | ~60% of worldwide EV sales |
| BYD revenue in 2024 | 777 billion yuan (~$107 billion) |
BYD's key strength is Vertical Integration — manufacturing its own batteries (Blade Battery), chips, and most components, allowing better cost control than competitors. It now exports to over 70 countries.
Operating Systems + Software — Xinchuang Changes Everything
The Xinchuang (IT Application Innovation) policy mandates all Chinese government agencies and state-owned enterprises to replace foreign software with Chinese alternatives (read more in our Digital Sovereignty article).
HarmonyOS — From Plan B to China's #2 OS
- Huawei built HarmonyOS after Google cut Android/GMS access in 2019
- HarmonyOS NEXT (2024): Completely removed the Android compatibility layer — a fully independent OS
- Market share in China: ~17-19% (surpassed iOS to become #2 behind Android)
- Apps in the ecosystem: 1.5 million+ apps
ERP: SAP/Oracle Are Being Replaced
In the ERP industry, the impact of Xinchuang is unmistakable:
| Foreign Software | Replaced By (Chinese) | Revenue (2023) |
|---|---|---|
| SAP ERP | Yonyou — YonBIP Platform | 9.85 billion yuan (~$1.36 billion) |
| Oracle ERP | Kingdee — Cosmic Platform | 5.68 billion yuan (~$785 million) |
| Oracle Database | OceanBase (Alibaba) / GaussDB (Huawei) | Growing rapidly |
| AWS / Azure | Alibaba Cloud (~36% of Chinese market) | ~$45-50 billion (total market) |
This model is critically important: the Chinese government does not build software itself — it orders government agencies to "buy" from private Chinese companies — creating a massive market that enables these companies to invest in R&D and develop products competitive at the global level.
Space + Quantum — The Frontier of Technology
Space Program
- Tiangong Space Station (2022): A permanently crewed space station — China is the third country to achieve this
- Chang'e 6 (2024): Successfully returned samples from the far side of the Moon — a first in human history
- BeiDou: Satellite navigation system with all 55 satellites operational, replacing GPS
- Target: Send humans to the Moon by approximately 2030
Quantum Computing
- Jiuzhang (2020): Photonic quantum computer — 76 photons (quantum advantage)
- Zuchongzhi (2021): Superconducting quantum processor — 66 qubits
- Wukong (2024): 72-qubit superconducting chip with cloud access
- Quantum network: Beijing-Shanghai (2,000+ km) — the world's largest quantum communication network
Behind the Success — The Chinese Government's Mechanisms
What sets China's strategy apart from other countries is its comprehensive support system:
| Mechanism | Details |
|---|---|
| R&D Budget | 3.33 trillion yuan (~$468 billion) in 2023 — 2.64% of GDP (world's #2) |
| STEM Graduates | ~5 million/year (more than the US + EU combined) |
| Researchers | 6.35 million (FTE) — the world's largest research workforce |
| PCT Patents | ~69,610/year — world #1 for 7 consecutive years (WIPO) |
| R&D Tax Incentives | R&D expenses deductible at 200% of actual cost / high-tech companies pay only 15% tax |
| Chip Fabs | 10-year tax exemption for fabs producing chips below 28nm |
The Numbers Tell the Whole Story
China vs US — The Tech War in Numbers
| Metric | China | United States |
|---|---|---|
| Government semiconductor budget | $97.5 billion (Big Fund) | $52.7 billion (CHIPS Act) |
| Total R&D/year | $468 billion (2.64% GDP) | $886 billion (3.46% GDP) |
| PCT patents/year | 69,610 (#1) | 55,678 (#2) |
| Generative AI patents | ~61% of global total | ~21% of global total |
| 5G base stations | 3.7 million (>60% of global total) | ~100,000 |
| STEM graduates/year | ~5 million | ~800,000 |
Lessons for Thai Organizations
What we learn from China's strategy is not just about geopolitics — it has direct implications for IT planning in Thai organizations:
- Supply chains can change at any time — Organizations that depend 100% on foreign software face the same risks that Huawei faced when it depended on TSMC
- Open Source is a sustainable alternative — China uses Open Source (Linux, RISC-V, DeepSeek) as the foundation for building its own technology. PostgreSQL and open-source security systems are also excellent alternatives for Thai organizations
- Domestic software is not inferior to foreign software — Kingdee and Yonyou have proven that domestic ERP can replace SAP/Oracle. Thai software like Saeree ERP can serve Thai organizations better because it understands Thai regulations and business culture
- Investing in technology resilience — Whether at the national or organizational level, there should be a risk management plan for scenarios where foreign technology becomes unavailable
"China has proven that — with political will + sufficient investment + enough talented people, a nation can build its own technology ecosystem, even when blocked by a superpower."
