Beijing is facing obstacles in its push to consolidate the country’s fragmented semiconductor industry into a handful of national champions that can compete against large US and European rivals.

Earlier this year, the Chinese government convened a group of Chinese chip equipment makers to discuss a potential megamerger that would combine different technologies into a single state-backed giant, according to multiple people familiar with the talks.

The merger plan, led by the National Development and Reform Commission, is part of a broader policy shift aimed at streamlining China’s semiconductor sector, which Beijing sees as vital for strengthening its domestic chip industry amid continuing US export controls aimed at curbing the country’s high-tech ambitions.