The shock in Washington was real: how did China move so fast in microchips when export controls were designed to slow it down? The answer, in large part, is Huawei and Xiaomi, backed by a state playbook that turned constraint into momentum. In a few short years, China transformed pressure into investment and execution, narrowing gaps once thought unbridgeable.
The embargo that accelerated China
When the United States tightened sanctions in 2019, it sought to choke off access to advanced components and design tools. That decision pushed Chinese firms to localize supply chains and to bet heavily on domestic know‑how. What looked like a brake became a catalyst for funding, talent, and infrastructure.
Instead of waiting, Beijing pushed billions of yuan into foundries, packaging, and materials, even where performance lagged the cutting‑edge nodes of Taiwan and Korea. The aim was continuity: keep shipping working products while scaling capacity and capability. Mastery of “good enough” chips bought time to pursue harder process steps and equipment.
Huawei and Xiaomi as spearheads
Huawei’s return with the Kirin 9000S inside the Mate 60 Pro signaled a strategic breakthrough. Built by SMIC using creative multi‑patterning, it showed China could make advanced chips without EUV access. That single launch was both a product and a proof‑point.
Xiaomi advanced on another axis, rolling out its Surge family for imaging and power management to reduce reliance on foreign suppliers. These parts target high‑volume functions—battery control, camera processing—where integration can provide efficiency and differentiation. Together, the two brands turned national goals into market artifacts the world could see.
“Sanctions slowed features at the margin, but they sped up ambition at the core,” noted one industry analyst, capturing the mood across both capitals.
A playbook built on scale
Behind the headlines sits a layered strategy that compounds over time. China leveraged its market size to guarantee demand while directing capital toward chokepoints in lithography, etch, deposition, and packaging. Where tools couldn’t be bought, companies leaned on reverse engineering and process ingenuity.
Standards strategy mattered too. RISC‑V, an open architecture, gained traction as an alternative to ARM and x86, easing licensing constraints and encouraging domestic innovation. The effect is a resilient ecosystem: not as elegant as the established one, but increasingly functional and hard to derail.
Key pillars of the shift included:
- Massive public‑private funding through national investment vehicles
- Long‑term purchasing commitments by top device brands
- Talent programs to repatriate experts and train new engineers
- Focus on “good enough” nodes with advanced packaging and system‑level design
- Ecosystem moves into RISC‑V, EDA, and specialty equipment
Why the United States is uneasy
America still leads in critical segments: chip design, EDA software, toolmaking, and research. But the velocity of China’s catch‑up unsettles policymakers and investors. If Beijing closes the gap in manufacturing, the leverage of export controls could fade.
The U.S. has responded with the CHIPS and Science Act, tighter export rules, and partnerships with allies in Europe and Asia. These moves shore up domestic capacity and protect crown‑jewel technologies. Yet they also incentivize the very substitution China is now accelerating, from design stacks to materials.
What Huawei and Xiaomi actually changed
Before 2019, Chinese firms excelled in assembly and consumer software, while relying on foreign silicon for the hardest parts. After 2019, the priorities flipped: silicon first, features later. Huawei proved a pathway to at‑scale, embargo‑tolerant processors; Xiaomi showed that control of peripheral silicon can stabilize product roadmaps and margins.
Both companies became anchors for local suppliers in sensors, memory, radio frequency, and power electronics. Their demand signals de‑risked huge capital outlays by foundries and toolmakers. That flywheel—orders, learning, yield improvement, and reinvestment—creates compounding returns no policy can easily halt.
The road ahead
China still faces tough physics at leading nodes, especially without EUV and with constraints on top‑tier EDA. But architecture, packaging, and system integration can offset node deficits for many applications. The likely outcome is a two‑track world: U.S.‑led for the absolute frontier, and China‑led for vast middle‑tier volumes.
For Washington, the lesson is that control must pair with capacity and a positive vision. For Beijing, it’s that speed plus scale can outmaneuver narrow bans. For the rest of the world, choice and diversification are becoming strategic features, not bugs, of the global semiconductor order.
