Huawei Technologies unveiled its new 5G smartphone during the recent visit to Beijing by US Commerce Secretary Gina Raimondo, who is in charge of the export controls that target Chinese access to semiconductors.
Among other goals, the US controls introduced last October aim to deny China chips fabricated at process nodes of 14 nanometres and below, justified by the need to stop Beijing from accessing advanced military and surveillance technologies based on cutting-edge chips. Yet, the chip at the heart of Huawei’s Mate 60 Pro — the Kirin 9000S — is not a technological revelation.
Mainland Chinese foundries like Semiconductor Manufacturing International Corporation (SMIC) have access to the same technologies Taiwan Semiconductor Manufacturing Company (TSMC) initially used to make 7-nm chips. Evidence emerged last year that SMIC was already producing sub-14-nm chips for commercial use. Still, SMIC’s achievement is impressive and sheds light on the Chinese industry’s capacity to thrive despite US controls.
Analyses of the new Kirin chip suggest that SMIC has achieved yield rates from its most advanced fabrication process that allows chip production at a scale and cost that can cater for Huawei’s new lines of consumer devices and simultaneously for the Chinese economy’s other needs.
The most straightforward explanation is that SMIC has continued to obtain foreign-made equipment covered by US controls introduced last October. If so, this raises questions about the wording and enforcement of the controls, including the granting of licences for selling controlled items to Chinese customers. That, in turn, has implications for the willingness of US allies to go along with Washington’s chip war against China.
There is already concern in Europe, Japan and South Korea that following the US lead will harm their companies in a marketplace where the competitors are largely from the US or allied advanced economies. Evidence that US-made equipment is still widely available in China despite US export controls is likely to undermine the appetite for coordination among these countries, whose companies occupy critical roles in the chip supply chain.
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Decoupling Huawei’s new phone highlights the Biden administration’s challenge in calibrating regulatory means, balance of outcomes and political imperatives when pursuing its decoupling or “de-risking” goals regarding China and strategic technologies.
The October 2022 controls remain an interim rule to be finalised, with the US government reportedly in renewed internal debate over how to proceed. At the heart of this challenge is the dual-use character of strategic technologies like semiconductors and China’s global economic integration in ways beyond low-level processing trade.
Chips are inputs into larger systems and end uses, which are the ultimate target of the US measures. Features of the new Huawei chip, apart from the fabrication node it was made at, showcased advanced capacity in complex technologies such as graphics processing and telecommunications.
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Improvements in China’s chip sector feed into the rapid development of such fields as next-generation telecommunications, manufacturing automation and electric vehicles, increasingly challenging foreign industry leaders from advanced economies.
Many of these foreign companies remain embedded in China’s evolving network of technological ecosystems. Chinese companies are also growing market share around the developing world, most notably in Southeast Asia with its fast-growing and digitising economies. The result is a digitised transnational economy in which China’s role is increasing.
From the start of the US-China technology wars, it seemed unlikely that such an entrenched Chinese presence in the web of interdependence could be excised by seeking to cut Chinese players off from selected technologies.
Such a “targeted” approach to China’s “derisking” has had more doubt cast over it by the shadow of Huawei’s and SMIC’s achievement. Even within the relatively narrow scope of chip fabrication, only a few technologies are specific to the most advanced processes. Many more inputs apply to production at older generation processes that are not export-controlled.
Chip fabrication at the most advanced nodes is not an absolute chokepoint for many applications. With a few exquisite technologies like leading-edge photolithography being relatively easy to control, Chinese chips will likely be unable to compete at the technological frontier in some important parameters for years. However, this will not disable Chinese industry from advancing in artificial intelligence, data processing, telecommunications and other fields.
Supported by state largesse, China’s extensive ecosystem of hardware and software suppliers and vast talent pool will keep generating technical and commercial solutions unless more drastic foreign measures are taken.
Political pressure
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This picture will drive political pressures in technologically leading countries to keep expanding restrictions on business with China. Alarm in the US, Europe and Japan over the challenge from Chinese suppliers of electric vehicles and other renewable energy technologies has led to steps towards import substitution and protectionism.
Direct costs from replicating industrial activity will stack with costs from a slowing global shift to green energy and the aggravated climate change effects that will result. These costs will be world-spanning but unevenly distributed, with the greatest burdens likely to be borne by those who are least able to.
The greater the ambition for decoupling and curbing Chinese technological progress, the wider and deeper the export controls and other restrictions must be. That implies an increase in the US need for cooperation from allies and their reluctance to follow. Outside this circle of technologically advanced economies, few countries are interested in shutting China out.
The changes to the October 2022 controls announced this week on Oct 17 show that the US government is determined to keep expanding its ‘small yard and high fence’ around chip technologies, and to extend this to a growing range of other countries, whether they are interested in technological containment of China or not.
John Lee is the director of East-West Futures https://eastwestfutures.com
