The US has long dominated the advanced semiconductor industry and is expending great effort and expense to prevent China from catching up.
- The US wants to prevent China from producing state-of-the-art chips
- China says it has started mass production of 14-nanometer chips
- Smaller chips are more advanced and are crucial for things like AI and defense systems
The tiny computing components are essential to almost everything powered by electricity today – from home appliances and consumer technology such as smartphones, computers and cars to defense systems, satellites, AI systems and weapons of war.
Not only has the US pumped billions of dollars in subsidies and other incentives into its industry, but it has also sought to forge alliances with South Korea, Japan, the Netherlands and Taiwan to boost production.
It has also taken steps to drastically limit China’s access to the critical technology, also known as microchips.
But experts warn that the recent spate of US moves in the so-called “chip wars” could also backfire and push China’s industry to develop its own advanced semiconductors.
“You really want to get better chips”
Andrew Kennedy, associate professor at the ANU Crawford School of Public Policy, told ABC there is a “very big gap between what the top Chinese chipmakers can do” and the world’s top makers.
To give an idea of how massive the push from China is, it has announced a $1.4 trillion plan to boost its chip technology and manufacturing sector.
31 semiconductor factories are to be built within the next two years.
That would likely help the company reduce the roughly $150 billion it spent importing semiconductors in 2021 alone.
In early September, China announced it would mass-produce 14-nanometer chips in Shanghai, its semiconductor hub.
These chips are used in many devices, but they are not enough for AI or advanced defense systems.
In July, reports emerged from outside China suggesting it was technically possible for the country’s Semiconductor Manufacturing International Corporation to make 7-nanometer chips.
That has led some to say US restrictions have not worked, but little is known about China’s apparent breakthrough and some remain skeptical of the claim.
The leading chips come from South Korea and Taiwan — which make about 60 percent of the world’s microchips and 90 percent of advanced chips.
They’re 3-nanometer chips, and China is desperate to improve its capabilities.
“They’re dying to get chips better than 14 [nanometre]said Dr. Kennedy.
“You want to have your finger on the pulse.”
What action has the US taken?
The US focus right now is on restricting China’s ability to develop or access the high-tech microchips.
Washington justified this by saying that confining chips to China protected national security and foreign policy interests.
It also allows the US to maintain its dominance in this area of technology.
“That is the immediate concern [the US] I don’t want advanced chips to go to the Chinese military,” said Dr. Kennedy.
“Perhaps in the back of their minds they want to limit China’s ability to make chips… for overall strategic competitive reasons.”
In December, the US, in agreement with 42 other countries, introduced controls to limit the use of software known as EDA, which is used to manufacture advanced chips.
In addition, it announced further measures in September.
It has restricted exports of equipment needed to manufacture advanced chips, making it increasingly difficult for US companies to supply Chinese firms with the tools they would need to develop a sub-14-nanometer chip .
US officials have also ordered leading chipmakers to stop exporting advanced chips to China, which is expected to limit Chinese companies’ ability to work on innovative projects like image recognition.
“The US is trying to limit the export of technology to China that would allow them to make chips smaller than 14 nanometers,” said Dr. Kennedy.
“The smaller the chip, the more advanced it is.”
Senior US politicians have also called on the Biden administration to blacklist Yangtze Memory Technologies, a state-owned Chinese semiconductor company that has reportedly supplied Huawei with chips for mobile phones.
The US wants a China-free supply chain
Meanwhile, the US is also investing huge sums to increase local manufacturing of advanced chips.
“America invented the semiconductor, but today produces about 10 percent of the world’s supply — and none of the most advanced chips,” the White House said in August.
“Instead, we rely on East Asia for 75 percent of global production”
Last month, $52 billion ($77.77 billion) in subsidies for the semiconductor industry were announced, along with tax incentives for building chip manufacturing plants in the United States.
So far, the US plans to build 12 manufacturing plants, including a $12 billion facility in Arizona with the world’s leading chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC).
Part of the action is about boosting American manufacturing as calls continue to address a chip shortage exacerbated by COVID and the war in Ukraine.
“It will strengthen American manufacturing, supply chains, national security, and invest in research and development, science and technology,” the White House said.
But it’s also about ensuring the US and its allies retain a technological advantage over China, which has been dependent on importing advanced chips, said Dr. Kennedy.
“[It] will also ensure that the United States maintains and advances its scientific and technological lead,” the White House said.
Washington has been working to create an advanced microchip supply chain that excludes China.
The US has reached agreements with Japan, Taiwan and South Korea.
For its part, Japan has partnered with TSMC to build a $7 billion facility in the south of the country.
South Korea is a major supplier of leading microchips and last May announced a massive $450 billion plan to increase its semiconductor manufacturing capacity over the next 10 years.
As part of its response to US restrictions, China deployed Li Zhanshu, the third most senior member of the Chinese Communist Party, to South Korea last week.
During his stay, Mr. Li said China supports “the realization of cooperation in high-technology sectors and the smooth and stable management of supply and industrial chains.”
Constraints must be carefully implemented
If more, stricter restrictions are introduced, the goal of curbing China’s technological development could backfire.
“If you allow foreign companies operating in China to continue importing this stuff, they won’t have as much incentive to de-Americanize the supply chain,” said Dr. Kennedy.
“But if you take it a lot harder – you don’t let anyone in China access this stuff – then there’s more incentive to de-Americanize the supply chain, and that would be an outcome that wouldn’t be good for the US.” “
dr Kennedy warned the US must implement its restrictions carefully or risk creating exactly what it wanted to limit.
“It would be difficult for China alone to build a supply chain without American technology,” he said.
“If the restrictions were too far-reaching, there is a fear that you could form a coalition of Chinese chipmakers and non-Chinese suppliers who might try to create a chipmaking supply chain that doesn’t involve American technology.”
This is not feasible in the foreseeable future.
“But the concern is that this could be possible in the long term,” said Dr. Kennedy.
China sees dependence on the US as a weakness and has an ambitious goal of making 70 percent of its semiconductors domestically by 2025, Samantha Hoffman, a senior analyst at the Australian Strategic Policy Institute, told ABC.
“In the long run, I don’t think US restrictions can be seen as a cause or should be seen as a backfire if or when China succeeds,” she said.
Though China still has a long way to go in its advanced chip manufacturing, it is likely to fill the technological gap, said Dr. hoffman
“China has invested billions in its semiconductor industry and invested a lot of energy in acquiring foreign IP from semiconductor companies,” she said.
“Eventually, with or without US restrictions, it will still reduce that dependency.”
according to dr Hoffman had valid concerns about advanced chips making their way into the Chinese military.
“Military platforms rely on semiconductor technology,” she said.
“It’s also a technology that contributes to a variety of other non-military fields, but it’s difficult to regulate end use.”
“Under the conditions of ‘military-civilian fusion’ in China, the line between ‘normal’ and national defense application of technology is increasingly blurred.”
dr Kennedy said recent reports suggest the US alliance is “fighting” and that “Koreans in particular have concerns about it.”
He said it was crucial for the US to keep its allies on board.
“There have been concerns that the US has balanced these considerations fairly well up to this point, but now it seems they are taking a more comprehensive approach,” said Dr. Kennedy.
“And if they’ve decided to go for some sort of blanket approach [to restrictions]they risk alienating their allies.”