SMIC’s AI Chip Strategy 2026: Powering China’s Self-Sufficient Infrastructure

SMIC’s Commercial Scale Projects for China’s AI Chip Localization in 2026

SMIC has pivoted from a general-purpose commercial foundry to the designated national champion for producing strategic AI hardware, allocating its most advanced manufacturing capacity to meet China’s domestic self-sufficiency goals.

• Between 2021 and 2024, SMIC’s focus was on foundational capacity expansion, initiating multi-billion dollar projects for mature nodes like the $2.35 billion fab in Shenzhen. The key technological achievement was the development of a 7 nm process (N+2) using older Deep Ultraviolet (DUV) lithography, validated by the 2023 launch of Huawei’s Kirin 9000 S chip.
• From 2025 to 2026, the strategy shifted to scaling advanced AI chip production. This includes mass production of Huawei’s Ascend 910 B AI chip and a planned doubling of 7 nm capacity in 2026. Furthermore, SMIC entered pilot runs for its 5 nm process, targeting mass production for partners like Huawei and Alibaba.
• This adoption is driven by strategic necessity rather than commercial competitiveness. The yield rate for Huawei’s Ascend 910 C is reportedly between 20% and 40%, far below industry standards. This demonstrates a state-backed adoption model where securing a supply of domestically produced AI chips overrides conventional cost and efficiency metrics.

SMIC Market Share Stays Firm Amid Expansion

Despite massive internal investment in AI-focused capacity from 2021-2024, SMIC maintained a stable 5-6% global foundry market share. This provides context for its transition to a national champion focused on domestic goals.

(Source: Longbridge)

SMIC Investment Analysis: State-Backed Billions Fuel AI Chip Expansion

SMIC’s aggressive R&D and capacity expansion are almost entirely underwritten by a state-directed investment strategy designed to create a resilient domestic semiconductor industry and overcome the impact of U.S. sanctions.

• In May 2024, China launched its third national semiconductor fund, valued at 344 billion yuan ($47.5 billion), with SMIC positioned as a primary beneficiary to fund its advanced node development and equipment procurement efforts.
• Prior foundational investments laid the groundwork for this expansion, including a $7.5 billion commitment in August 2022 for a new 12-inch wafer factory in Tianjin and a $2.35 billion joint venture project in Shenzhen announced in March 2021.
• A strategic consolidation occurred in January 2026 when SMIC moved to acquire full control of its Beijing subsidiary, Semiconductor Manufacturing North China (SMNC), for $5.79 billion. This move streamlines operations and aligns its most advanced fabs directly with national AI objectives.

Table: SMIC’s Key Investments in AI Infrastructure Capacity

SMIC’s Strategic Alliances: Building a Sanction-Proof AI Ecosystem

SMIC has constructed an insular, domestic partnership ecosystem centered on national technology champion Huawei and other key Chinese firms to create a vertically integrated supply chain for AI hardware.

• The partnership with Huawei is the cornerstone of SMIC’s AI strategy. SMIC serves as the exclusive foundry for Huawei’s Ascend series of AI chips, including the Ascend 910 C on its 7 nm process, and is collaborating on a 5 nm node for future chips.
• In December 2025, SMIC expanded its high-end AI chip partnerships by collaborating with Alibaba Group to develop and manufacture a new 5 nm chip customized for AI inference workloads, signaling growing demand from China’s cloud and data center giants.
• To secure its production capabilities long-term, SMIC is actively testing equipment from domestic suppliers. This includes a 28 nm DUV lithography machine from Yuliangsheng, with the goal of adapting it for 7 nm and 5 nm production to reduce reliance on foreign toolmakers like ASML.
• SMIC also serves a broader ecosystem of Chinese AI firms, providing foundry services for emerging companies like Deep Seek and Horizon Robotics to help them develop proprietary AI chips for edge and data center applications.

Table: SMIC’s Key Partnerships for AI Chip Development

Geographic Focus: SMIC’s China-Centric AI Infrastructure Build-Out

SMIC’s entire strategic and operational footprint for advanced AI chip manufacturing is concentrated within mainland China, reflecting a deliberate national strategy to achieve technological sovereignty and supply chain resilience.

• Between 2021 and 2024, SMIC initiated large-scale fab construction projects in key Chinese technology hubs to build foundational capacity. This included the announcement of a $7.5 billion plant in Tianjin (2022) and a $2.35 billion facility in Shenzhen (2021).
• From 2025 to today, the geographic focus has narrowed to specific, high-tech production lines within these hubs. Shanghai has become the center for SMIC’s forthcoming 5 nm production for Huawei, while the January 2026 consolidation of its Beijing subsidiary (SMNC) tightens control over its northern manufacturing assets.
• This geographic concentration is not a commercial choice but a geopolitical necessity. By locating its most advanced manufacturing and R&D efforts in cities like Shanghai, Beijing, and Shenzhen, SMIC creates a closed-loop, localized ecosystem designed to withstand external supply chain disruptions and export controls.

SMIC Technology Status: Advancing to 5 nm Production Despite Sanctions

SMIC is successfully advancing its process technology to near-leading-edge nodes by refining older DUV lithography, an approach that demonstrates significant engineering capability but comes at the cost of poor yields and high production expenses.

• In the 2021-2024 period, SMIC made a critical technological leap from its mature 14 nm process to successfully mass-producing a 7 nm process (N+2). This was validated with the launch of Huawei’s Kirin 9000 S smartphone chip in 2023 and later the Ascend 910 B AI chip.
• From 2025 onwards, the company’s focus shifted to its next-generation 5 nm node. SMIC is currently conducting pilot runs and aims for mass production in 2026, which will be used for Huawei’s and Alibaba’s next-generation AI processors.
• The technology’s commercial maturity remains limited. The 7 nm process suffers from low yield rates reported to be between 20% and 40%. This indicates the technology is not yet globally competitive and relies on a protected domestic market and state subsidies to be viable.

SMIC Climbs Tech Ladder Despite Sanctions

This infographic visualizes SMIC’s technological progression toward 7nm and 5nm nodes, a key theme of this section. It frames this advancement against the backdrop of US sanctions and the gap with industry leaders.

(Source: semivision – Substack)

SMIC SWOT Analysis: Navigating a Geopolitical and Technological Divide

SMIC’s primary strength is its guaranteed domestic market and immense state support, while its main weakness is its persistent technological gap and reliance on sanctioned equipment, creating opportunities in localization but constant threats from further international restrictions.

Foundry Market Share Visualizes SMIC’s Challenge

This chart starkly illustrates a key weakness in SMIC’s SWOT analysis: the vast market and technological divide with leader TSMC. SMIC’s 5% share versus TSMC’s 62% quantifies the geopolitical challenge.

(Source: Voronoi)

Table: SWOT Analysis for SMIC (Semiconductor Manufacturing International Corporation)

Forward Outlook: SMIC’s 2026 Focus on Yield Improvement and 5 nm Scale

The most critical objective for SMIC in the year ahead is to demonstrate it can successfully scale its 5 nm and 7 nm processes with improved yields, thereby proving its ability to reliably supply the hardware for China’s national AI infrastructure ambitions.

• The planned doubling of 7 nm production capacity in 2026 is a key milestone to watch. Its success will determine whether SMIC can alleviate the domestic AI chip bottleneck for its primary partner, Huawei.
• Achieving mass production on its 5 nm node by the end of 2026 will be a major validation point. The industry will closely monitor the yield rates and performance of these chips as a barometer of China’s progress in overcoming sanctions.
• The integration of domestically produced lithography tools, such as the one being tested from Yuliangsheng, is a crucial long-term indicator. A successful transition would signal a fundamental shift toward true technological independence.
• Despite its strategic importance, SMIC faces commercial headwinds. The co-CEO’s warning of a potential glut in AI data center capacity suggests that even with state support, the company must navigate market economics to maintain financial health.

SMIC’s Future Valuation Amid Global Giants

Supporting the forward outlook, this chart projects SMIC’s late 2025 valuation at $85.5 billion. This provides a future-oriented benchmark for the company’s progress while highlighting its relative scale against global titans.

(Source: Visual Capitalist)

Frequently Asked Questions

What is SMIC’s primary role in China’s AI strategy?

SMIC has shifted from a general-purpose foundry to China’s designated national champion for producing strategic AI hardware. Its main role is to provide a domestic, sanction-proof supply of advanced chips for key partners like Huawei, ensuring China can build its own AI infrastructure despite international restrictions.

How is SMIC producing advanced 7nm and 5nm chips without the latest equipment?

SMIC is using older Deep Ultraviolet (DUV) lithography technology to manufacture its advanced 7nm and 5nm nodes, as it is restricted from accessing the industry-standard EUV lithography machines. While this is a significant engineering achievement, it comes at the cost of very low yield rates (reportedly 20-40% for 7nm) and higher production expenses.

How is SMIC funding its massive expansion projects?

SMIC’s aggressive expansion is almost entirely underwritten by a state-directed investment strategy. It is a primary beneficiary of China’s national semiconductor funds, including the $47.5 billion “Big Fund III” launched in May 2024, which finances its advanced node development and capacity expansion to overcome U.S. sanctions.

Who are SMIC’s key partners for its AI chips?

SMIC’s most critical partner is Huawei, for whom it serves as the exclusive foundry for the Ascend series of AI chips. It is also building alliances with other Chinese tech giants, such as Alibaba Group, to develop and manufacture custom 5nm AI chips for their data center needs.

What is the biggest challenge for SMIC in 2026?

The most critical challenge for SMIC in 2026 is to improve its manufacturing yields for the 7nm and 5nm processes. Successfully scaling production with better efficiency is vital to prove it can reliably supply hardware for China’s national AI ambitions and alleviate the domestic AI chip bottleneck for partners like Huawei.