The United States has long dominated the advanced semiconductor industry and is doing everything it can to prevent China from catching up.
- The US wants to prevent China from making next-generation chips
- China says it has started mass-producing 14-nanometer chips
- The smaller chips are more advanced and crucial for things like AI and defense systems.
Small computing components are essential to just about anything powered by power these days, from home appliances to consumer technology like smartphones, computers and cars, to defense systems, satellites, AI systems and weapons of war.
In addition to pumping billions of dollars in subsidies and other incentives into its industry, the US has sought to build alliances with South Korea, Japan, the Netherlands and Taiwan to boost production.
It has also taken steps to drastically restrict China’s ability to access critical technology, also known as microchips.
But experts warn that the latest set of US moves in so-called “chip wars” could also backfire and push China’s industry to develop its own advanced semiconductors.
‘They’re dying for better chips’
ANU Crawford School of Public Policy Associate Professor Andrew Kennedy told ABC there was a “very significant gap between what the major Chinese chipmakers can do” compared to the world’s leading producers.
To give an idea of how massive China’s push is, it has announced a $1.4 trillion plan to promote its chip manufacturing and technology sectors.
Its goal is to build 31 semiconductor plants in the next two years.
That would likely help it cut back on the roughly $150 billion it spent importing semiconductors in 2021 alone.
In early September, China announced that 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 outside of China suggesting it was technically possible for the country’s International Semiconductor Manufacturing Corporation to make 7-nanometer chips.
That led some to say the US restrictions haven’t worked, but little is yet 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 are 3-nanometer chips, and China is desperate to improve what it can make.
“They are dying to have better chips than the 14 [nanometre]said Dr. Kennedy.
“They want to be at the forefront.”
What measures has the United States taken?
The US’s main focus right now is to limit China’s ability to develop or access the highest-tech microchips.
Washington has justified this by claiming that restricting chips to China protects national security and foreign policy interests.
It also allows the US to maintain its dominance in this field of technology.
“The immediate concern is that [the US] I don’t want advanced chips going to the Chinese military,” said Dr. Kennedy.
“It may be in the back of their minds that they want to restrict China’s ability to make chips… for general reasons of strategic competition.”
In December, the US, in agreement with 42 other countries, put in place controls to restrict the use of software, known as EDA, used to make advanced chips.
In addition to this, he announced new measures in September.
It has restricted exports of the equipment needed to make advanced chips, making it increasingly difficult for US companies to supply Chinese companies with the tools they would need to develop a sub-14-nanometer chip.
US officials have also ordered major chipmakers to stop exporting advanced chips to China, in a move expected to limit Chinese companies’ ability to work on cutting-edge projects such as image recognition.
“What the United States is trying to do is restrict exports of technology to China that would allow it to make chips smaller than 14 nanometers,” said Dr. Kennedy.
“The smaller the chip, the more advanced it is.”
Senior US politicians have also urged the Biden administration to blacklist Yangtze Memory Technologies, a Chinese state-owned semiconductor company that has reportedly supplied Huawei with mobile phone chips.
The United States wants a supply chain free from China
Meanwhile, the US is also investing heavily to increase local manufacturing of advanced chips.
“The United States invented the semiconductor, but today it produces about 10 percent of the world’s supply, and none of the most advanced chips,” the White House said in August.
“Instead, we depend on East Asia for 75 percent of world production”
Last month, $52 billion ($77.77 billion) in subsidies for the semiconductor industry were announced, along with tax incentives to build chip manufacturing plants in the US.
So far, the US has plans to build 12 manufacturing plants, including a $12 billion plant in Arizona with the world’s leading chipmaker Taiwan Semiconductor Manufacturing Company (TSMC).
The moves are due in part to ramping up U.S. manufacturing as demands continue to fill a chip shortage exacerbated by COVID and the war in Ukraine.
“It will strengthen American manufacturing, supply chains and national security, and invest in research and development, science and technology,” the White House said.
But it’s also about making sure the US and its allies maintain a technological advantage over China, which has relied on importing advanced chips, Dr. Kennedy said.
“[It] It will also ensure that the United States maintains and advances its scientific and technological advantage,” the White House said.
Washington has been working to create an advanced microchip supply chain that excludes China.
The United States has made arrangements 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 boost its semiconductor manufacturing capacity over the next 10 years.
As part of its response to US restrictions, China last week sent Li Zhanshu, the third-ranking member of the Chinese Communist Party, to South Korea.
While there, Li said China supported “realizing cooperation in high-tech sectors and managing industrial and supply chains smoothly and stably.”
Restrictions must be carefully implemented
If additional and stricter restrictions are put in place, the goal of limiting China’s technological development could backfire.
“If you allow foreign companies operating in China to continue to import this material, they won’t have as much of an incentive to de-Americanize the supply chain,” said Dr. Kennedy.
“But if you’re much stricter about it, not allowing anyone in China access to these things, then there will be more incentive to de-Americanize the supply chain and that would be a result that would not be good for the US.” “
Dr. Kennedy warned that the US needed to carefully implement its restrictions or risk creating exactly what it sought to limit.
“It would be difficult for China alone to create a supply chain without American technology,” he said.
“If the restrictions were too broad, the fear is that a coalition of Chinese chipmakers and non-Chinese suppliers could form that could try to create a chipmaking supply chain that doesn’t involve US technology.”
That is not feasible in the near future.
“But the fear is that it can be done in the long term,” said Dr. Kennedy.
China sees reliance 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 the US restrictions can be seen as a cause, or should be seen as a failure when China succeeds,” he said.
While it has a long way to go in its advanced chip manufacturing, China is likely to close the technology gap, Dr. Hoffman said.
“China has invested billions in its semiconductor industry and has invested a lot of energy in acquiring foreign intellectual property from semiconductor companies,” he said.
“Eventually, with or without US restrictions, it will reduce that dependency anyway.”
According to Dr. Hoffman, concerns about advanced chips making their way into China’s military were legitimate.
“Military platforms rely on semiconductor technology,” he said.
“It is also a technology that contributes to a wide range of other non-military fields, but it is difficult to regulate the end use.
“Under the conditions of ‘military-civilian merger’ in China, the line between ‘normal’ technology application and national defense is increasingly blurred by design.”
Dr. Kennedy said recent reports suggested the US alliance was “struggling” and that “the Koreans in particular had concerns about it.”
He said it was crucial for the United States to keep its allies on board.
“There has been concern that the US was balancing these considerations quite well up to this point, but now it looks like it might go for a more general approach,” Dr Kennedy said.
“And if they opted for a kind of more general approach [to restrictions]risk alienating allies.”