China Lags in Chip Race as TSMC and Musk Expand

China faces a significant gap in semiconductor capabilities and may take five years or longer to catch up to the United States and Taiwan. While Chinese firms maintain pace with frontier AI model capabilities, they lag behind in revenue and access to the chip supply chain.

U.S. export controls have blocked China from acquiring ultra-complex manufacturing tools from ASML Holding for seven years, preventing the development of an indigenous ecosystem. Consequently, Taiwan continues to dominate advanced chip production, with its aggregate exports to the U.S. recently overtaking those of China.

To diversify supply chains, TSMC is building fabrication plants in the United States, Germany, and Japan, though high AI demand continues to drive significant imports from Taiwan. In the U.S., Elon Musk announced the Terra Fab project in Texas to produce cutting-edge chips later this decade to support Tesla and SpaceX.