There are some good Chinese chip design houses. Although they're not yet up to doing a state of the art superscalar CPU, they can do most smaller parts.
I'm a US-born, US-educated chip designer working in China, and you are spot-on. Design and manufacturing (SMIC) are accelerating very quickly. 10 years ago, there was nothing. 5 years ago, there were startups. Today, there are Chinese companies putting out good chips, as well as respected US companies opening design offices here.
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