The tools for Chip production are created by specialized companies because every single part is extremely expensive. For example, even the US uses photolithography machines from ASML. China is forced to copy these machines now because of the sanctions and it's just a matter of time until their machines are even better than the original. Maybe 5 years, but maybe just 2 years.
Long time ago they have sent their best to universities in the US. But now, only the ones who cannot get a place at the Chinese universities come to the US.
Yes, the precision equipment has been withheld from China. Steppers, sputterers, etchers, etc. Then there is the sort, packaging, testing, etc back end. Dialing in fab parameters with ET testing. Characterization/qualification of fab processes and die products. Water deionization, chemical purity, lots of items unavailable in China. I seriously doubt China can improve on Western quality, they have been unable to meet western quality in any other industry to date. Their strength is cheap labor. If China needs TSMC to get a foothold in the bleeding edge race. USA has very few fabs that have attained TSMC level quality. It is faster and cheaper to go fabless and send their designs to TSMC to manufacture the chips.
I'm old enough to remember how Japan was underestimated, then South Korea, and then China. China delivers exactly the specified quality, this is not a matter of luck like with Indian suppliers.
They not only copy but optimize things. That's why Haier could buy the appliance division from GE, they have the fresh ideas. That's why they have hypersonic missiles: they not only stole the fluid dynamic computations from the US but built the shockwave tunnels to adjust the computer models to reality. They never stop with just doing the same the West can do.
Has anyone seen the hypersonic missiles in action? I heard video from their space station had an open cup holding water (I didn't see it myself). I think there is a lot of deception coming out of China. I don't know exactly what is real vs illusion.
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