Frankly, I think you're missing the forest for the trees.

Yes, SMIC is behind the big players, but these newer node shrinks are delivering increasingly small iterative gains. Meanwhile, leakage power is becoming an increasingly important concern for smaller nodes, and much of the technologies that these advanced nodes are delivering (e.g., backside power, 3D stacking) are not coupled with the node itself. Indeed, there's no reason GAAFET (or whatever people are calling it these days) needs a smaller node, only that it doesn't really make financial sense on a larger one. It would, if, say, you wanted to develop the technical capability and had idle engineering cycles waiting for machines. So, what does this mean? SMIC can progress at will on everything except the node itself. It'll remain behind on sheer density, but Intel showed that you can be stuck on a single node for the better part of a decade and still be a market leader. SMIC already knows how to scale a fab (the Huawei Mate 60 moved more than 30 million units in less than a year).

On the process side, SMIC will be behind but not obscenely so. What about at the architecture level? Here, there lies a big problem. Most of the world has been locked in to the CUDA ecosystem. They're tied to Nvidia for any massively parallel computing needs, and Nvidia can charge whatever price they want. This is, unsurprisingly, a problem, because Nvidia's hardware is, believe it or not, not the most optimized for a wide variety of applications. There's been an abundance of research into specialized accelerators for applications like machine learning and scientific computing (and indeed, also many real-world designs) which deliver up to an order of magnitude increase in perf/W, but, perhaps more importantly, a substantially reduced TCO due to not having to pay Nvidia's obscene prices. Indeed, this can be seen by the fact that Huawei's Ascend accelerators are actually getting tractíon in the Chinese market. So, at scale, China will be hogging up more electricity for low-capital-cost data centers with higher operating cost... Fortunately, China has an obscene amount of basically free green energy coming online in the next few years.

So, what's all this concern about? It's pretty simple: mobile applications are constrained by energy-efficiency, and you can't get around key energy-efficiency limits without shrinking the transistor. Fortunately, advanced nodes aren't used in most military or space applications due to reliability concerns... So, the main application for them will be consumer-focused applications like smartphones, autonomous vehicles, and drones. This is a rather annoying problem given that China is betting their next decade of growth on the EV transition, but it's not insurmountable in the near-term given the sheer cost advantage China has in shipping non-autonomous EVs due to efficiencies in the rest of the supply chain. The same holds for drones, where DJI is the undisputed market leader. For smartphones, Huawei has the largest captive market in the world and Apple is rapidly losing market share.

Ok, so, having established the challenges, how far away is SMIC from a solution?

As discussed, SMIC already operates fabs at scale for 7nm, and indeed SMEE has demonstrated the ability to ship a DUV lithography machine. Intel7 is also entirely DUV, so this isn't all that surprising. NAND processes still use DUV as well. Intel's TSMC N7-equivalent process first started shipping with Ice Lake in late 2019, while SMIC's 7nm process started shipping with the Kirin 9000S in mid 2023. SMIC is expected to start shipping 5nm at volume later this year (how? I'll never know, but clearly the yields are alright because they're going to be supplying Huawei again).

I'll stress this again and again: yields are for the most part, an engineering problem. Getting high yield with multi-patterning requires some absurdly complex engineering, but it's not inherently impossible with tight enough tolerances. It wouldn't be economically viable in an open market where EUV is available, but it isn't.

The big concern right now is, surprisingly, not on the manufacturing side but on the software side. There is no equivalent in the world for American EDA tools. None. The minute sanctions stretch towards EDA, China will be set back by more than a decade. China lacks EDA tools for newer nodes.