In an unexpected twist, measures by the U.S. to limit semiconductor exports could be turning counterproductive. A recent report by SCMP highlighted a dramatic 40% increase in China's production of conventional semiconductor chips during the initial quarter of 2024. This spike in production could position China as a predominant figure in the manufacture of these older technology chips.

The primary catalyst behind this growth is the absence of export restrictions on these so-called "mature chips", which are those designed with 28nm or older technology processes. The American government excluded these types of chips from sanctions, aiming to safeguard supply chain stability; they are crucial for a variety of essential products, including vehicles, household appliances like toasters and phones, and even medical devices. These chips, according to the U.S., do not compromise national security like their more modern counterparts might.

In March 2024, China's production of these legacy semiconductors reached a record-breaking 36.2 billion units. Over the last three months, China produced nearly triple the amount it did in the first quarter of 2019, marking a significant leap since the initiation of its strategy to localize semiconductor manufacturing.

Following the introduction of U.S. sanctions, Chinese investments have predominantly pivoted towards these mature technologies rather than the forefront of semiconductor technology. This shift is supported robustly by national initiatives, propelling substantial outputs in production, to the extent of excess.

Reports now forecast that by 2027, China will control as much as 39% of the global market for mature-process semiconductor capacity, which is a rise from last year's 31%.

This trajectory might persist beyond 2027 if the U.S. maintains its current sanctions policy. Constrained by these regulations, China focuses on older technological processes as it lacks mainstream competitive technologies against giants like Intel and TSMC in cutting-edge semiconductor fields. The goal for China is clear: to achieve technological self-reliance despite not possessing the advanced lithography technology needed for state-of-the-art microchip manufacturing.

Despite its accelerated domestic production, China continues to depend significantly on semiconductor imports, which have seen an increase of 12.7% in the first quarter of 2024, indicating that the path to full self-reliance might still be a work in progress.