China has upped the ante on previously flagged plans for self-reliance in critical industries within five years by pledging to increase nationwide spending on R&D by at least 7% annually until 2030.
Nowhere are China’s plans to go head-to-head with the world, especially the United States, on critical industries more evident than within plans to turbocharge the country’s development of chips and high-end equipment.
Plans to boost R&D are part of a draft outline of the 15th Five-Year Plan submitted for review on the first day of China’s annual legislative session, which runs from 5 to 12 March.
In 2024, China is understood to have imported US$386 billion (A$550.9 billion) worth of integrated circuits, making them the country’s largest single import product – even surpassing crude oil.
Underlying chip technology
While physical chips may arrive from Taiwan or Korea, the underlying technology often originates in the U.S., and this is clearly something China wants to reverse.
To put the significance of China’s plans for self-sufficiency into context, in 2024, Huawei - the world's largest manufacturer of telecommunications equipment - accounted for around 23% of China’s AI computing chip market.
According to Bernstein Research, Nvidia retained 66%, AMD held 5%, while domestic developers such as MetaX and Moore Threads each had around 1%.
The resurgence of R&D spending in China – which at US$785.9 billion in 2024 surpassed the U.S. in 2024 for the first time – may help explain why Beijing has lowered its economic growth target for 2026 to 4.5% - 5%.
Admittedly, this would be China’s lowest growth in a decade, but the Middle Kingdom is clearly comfortable playing the long-game against the U.S. by focusing on strategic endurance, self-reliance, and the gradual erosion of U.S. exceptionalism.
Extraordinary measures
According to China’s draft road map, to target speedy breakthroughs in core technologies, Beijing is prepared to take “extraordinary measures” to make advancements in fields like chips and high-end equipment.
It’s understood that China is aiming for a fivefold increase in advanced (7nm-5nm) chip production capacity within the next 1-2 years to supply the surging domestic demand for AI processors and data-centre hardware.
Despite U.S. export controls aimed at restricting access to advanced semiconductors, chip-making equipment, and AI technology - to protect national security - China’s leading semiconductor manufacturers are currently intensifying efforts to increase output of higher-performance chips.
Interestingly, even if Washington authorises their sale, Chinese authorities are currently entertaining regulatory measures that would oversee U.S. imports like Nvidia’s H200 AI processors.
This reflects their desire to balance support for domestic champions with continued participation by foreign vendors.
Increased output
Meanwhile, Semiconductor Manufacturing International Co, Hua Hong Semiconductor along with several chip producers all with ties to Huawei are either expanding existing facilities or preparing new production lines capable of manufacturing chips at the most sophisticated process nodes currently achievable within China.
While China is aiming to raise output of these relatively advanced chips to around 100,000 wafers within one to two years - up from fewer than 20,000 at present - policymakers are also looking to add a further 500,000 wafers of annual capacity by 2030.
Meantime, access to advanced lithography remained the single most critical bottleneck for China’s semiconductor ambitions as of March 2026.
While China has achieved significant self-sufficiency in other areas - notably etching and deposition - lithography remains a black hole where domestic alternatives are currently less than 1% of the market.
Nevertheless, China is increasing investment in its own lithography development programmes and is encouraging local chipmakers to source domestic tools wherever feasible.
Unchoke domestic demand
Beyond chips and high-end equipment, China’s R&D push also plans to focus on strengthening its competitive advantage in sectors such as rare earths, rare metals and super-hard materials, the recent road map noted.
As well, upgrading factories with smarter production lines, policymakers also want to fast-track the development of emerging sectors like robots and aerospace, and promote future industries like quantum technology and brain-computer interfaces.
Also embedded with China’s road map are plans to address existing choke points in domestic demand that are holding back household consumption as a share of GDP.
According to the latest World Bank data for 2024, China’s household consumption forms around 40% of its GDP versus the global average of around 55% in 2022.
To lift consumer spending, Beijing has since 2024 underwritten subsidies on goods from cars to washing machines, and in 2026 issued a plan to boost spending on services like tourist trains and eldercare.
