Shanghai-based contract chip maker Semiconductor Manufacturing International Corp (SMIC), helped by two former semiconductor veterans from Taiwan, has cemented its status as Beijing’s best hope to catch up with global peers in semiconductor manufacturing despite US restrictions barring it from buying the most advanced chipmaking equipment and technologies. The world’s fourth-largest foundry on Wednesday published its audited 2020 financial results, confirming strong top-line and bottom-line growth last year and marking a rebound from 2018 and 2019, when investment in expanding production capacity and R&D led to consecutive losses. The company reported a record-high 27.5 billion yuan (US$4.2 billion) in revenue for 2020, representing 24.8 per cent year-on-year growth. Net profit grew a hefty 217 per cent to reach 4 billion yuan due to brisk chip demand last year. “SMIC will still play a crucial role in advancing China’s chipmaking technology going forward,” said Arisa Liu, research fellow at the Taiwan Institute of Economic Research. Both China and the US are doubling down on investments in their domestic hi-tech industries, especially in semiconductors, amid the world’s growing dependence over the past decade on Taiwan, home to the world’s leading foundry Taiwan Semiconductor Manufacturing Company (TSMC). As the Chinese government encourages investment in chip manufacturing, with many local governments showering preferential treatment on their own chip projects, SMIC remains the leading player in terms of technology, output and talent. Last month, the company announced it would work with the Shenzhen government to build a US$2.35 billion wafer fab which is expected to start production in 2022. Nick Marro, lead for global trade at The Economist Intelligence Unit, said China is expected to continue supporting its national chip champions as part of its broader industrial policy drive. “That should provide some cushion to SMIC going forward,” he said. “Considering the signs that the US export controls are already biting into its performance, however, it will be a question of how sustainable this support is, particularly as US-China ties remain under strain,” Marro added. China’s semiconductors: How Wuhan’s challenger to Chinese chip champion SMIC turned from dream to nightmare Although SMIC is years behind TSMC, only able to produce 28-nanometre and 14-nm node chips in volume compared with TSMC’s 5-nm, it is assured of strong growth prospects given that more mature nodes are still in high demand for applications from cars to consumer electronics amid a shortage brought about by the pandemic. SMIC still generates the bulk of its wafer revenue from mature 55-nm and 65-nm nodes, which contributed 34 per cent of wafer revenue in the fourth quarter, up from 31 per cent in the same period in 2019 and 25.8 per cent in the third quarter of 2020. US trade restrictions, imposed on SMIC for its alleged links to the Chinese military – a charge it denies – could continue to cloud its prospects for ramping up capacity in mature nodes and moving up the technology ladder. Company’s executives said in a February call with analysts that a large part of its US$4.3 billion capital expenditure (capex) for this year will be for expanding production capacity of its mature chipmaking technology. Co-chief executive officer Zhao Haijun said SMIC still needs US licences to buy the necessary equipment to expand capacity of its mature technology nodes. Analysts say the US attitude towards SMIC in the short term is still unclear. “Whether SMIC could source equipment and technology from US allies is yet to be seen,” said Liu from the Taiwan Institute. SMIC’s 2021 planned capex is down from the US$6.7 billion it spent last year. “It obviously plans smaller expansion this year,” said Stewart Randall, head of electronics and embedded software at Intralink. “That’s probably because it cannot get access to all the equipment it needs, and maybe because it needs to keep things steady for now.” But the Chinese company is not alone in reducing capex. Japan’s Sony and US chip makers Intel and Micron Technology also reported a capex drop in 2021, according to a report in Semiconductor Engineering , based on data from Semico Research Corp and company sources. In March, SMIC secured supplies of deep ultraviolet (DUV) lithography systems from Dutch firm ASML in an amended purchase agreement worth US$1.2 billion, which could help ensure the Chinese firm’s capacity expansion for more mature nodes. ASML’s extreme ultraviolet (EUV) lithography systems, the best tools for producing leading edge 5- and 7-nm node chips, were not included in the agreement. Despite growing calls for self-reliance in the Chinese semiconductor industry, many experts doubt China will get far in de-westernising its chip supply chain after three decades of globalisation in the sector. Speaking at an industry event in Hsinchu, Taiwan, on Tuesday, TSMC chairman Mark Liu said global efforts to develop national self-sufficiency in chip production were “economically unrealistic”, according to a Bloomberg report. SMIC’s vice-chairman Chiang Shangyi and co-CEO Liang Mong Song are both former high-ranking executives at rival TSMC.