Editor's note: This report focuses on Quanzhou as part of our special series, "Rising Star Cities," about Chinese cities whose annual GDP exceeds 1 trillion yuan ($155 billion). At the end of 2021, there were 24 such cities. Click here for more stories on Quanzhou, an ancient trading hub known for its cultural diversity. You can also explore our earlier coverage of Ningbo, Changsha and Chongqing.

With the recent $280 billion U.S. CHIPS and Science Act signed off by President Joe Biden, the competition between the U.S., China, the European Union, and other East Asian countries to shore up their semiconductor capabilities has become increasingly fierce. After a global chip shortage and amid a scarred post-pandemic economy, the shortages are now spreading from autos to smartphones and displays, elevating semiconductors onto the agendas of governments from Washington to Brussels and Beijing.  

The big chip race

Apart from the United States, which allocates $52 billion in funding from the act for its own semiconductor manufacturing, other major economies have also rolled out packages to boost domestic semiconductor production and research. 

The European Union outlined a €43-billion ($49 billion) bundle from public and private funding for the sector in February and the Japanese government has approved investment totaling 774 billion yen ($6.8 billion) for its domestic chip industry. South Korea aims to attract roughly $450 billion in private investment to build the world's biggest chipmaking base over the next decade.

"I think that this is a war for our chip industry," said Nie Yongzhong, CEO of semiconductor company FATRI Group based in Quanzhou, southeast China's Fujian Province.

FATRI, or Future Advanced Technology Research Institute, is an integrated device manufacturer (IDM) for sensor chips with comprehensive capabilities from chip design to manufacturing, packaging, and testing.

Where will China stand?

For now, most chip manufacturers that qualify as IDMs are in the U.S., the EU, and East Asia, but Nie believes that China needs and has the potential to incubate more of them.

"I think our current shortage exists because we need more IDM (enterprises)," he said.

EDA is a software analysis tool crucial used by chip designers across the entire semiconductor chip chain.

On August 12, the U.S. Bureau of Industry and Security announced a new ban on exporting EDA software for making 3nm and more advanced chips to China. The banned EDA software for gate-all-around field effect transistor (GAAFET) is the next-generation semiconductor tech that can help chips achieve a higher frequency and lower power consumption. 

It is a highly advanced technology that has only been adopted by Samsung so far, while Intel and Taiwan Semiconductor Manufacturing Company (TSMC) are planning to use it. 

An analyst told Chinese business news outlet Caixin that the ban will have a limited effect on China in the short term but will restrain China's development in advanced chip-making. 

Foreign firms took 77 percent of the EDA market in China in 2020, according to China's CCID Consulting. However, local EDA providers like Primarius Technologies claimed they had "formed core key tools that can support advanced process nodes such as 7nm, 5nm, and 3nm," according to its company website.

However, Nie thinks the ban would further boost China's capability to achieve chip self-sufficiency as "IDMs can build their own integrated circuit (IC) databases, which will also boost the development of EDA companies."

Nie believes that the advancement of IDMs would also foster the growth of chip design talent, who would, by that time, contribute in building China's own fabrication facilities (fab), or outsourced production companies, with core intellectual property rights.