The US government has introduced some of its most extensive export controls yet with the aim of insulating China from advanced semiconductors. Analysts said the move could hamper China’s domestic chip industry.
Mandel Ngan | AFP | fake images
China’s ambitions to boost its domestic chip industry are likely to have become much more difficult and costly after the US launched some of its most extensive technology-related export controls against Beijing.
On Friday, the US Department of Commerce introduced general rules aimed at preventing China from obtaining or manufacturing key chips and components for supercomputers, in what is seen as a major escalation of tensions between Beijing and Washington in the technology arena.
The United States argues that these advanced semiconductors can be used by China for advanced military capabilities.
“There is no going back to the way things were,” Abishur Prakash, co-founder of the Center for Innovating the Future, an advisory firm, told CNBC.
“With the latest action, the chasm between the US and China has now widened to the point of no return.”
Here are some of the highlights of the new US rules:
- The companies require licenses to export high-performance chips, usually designed for artificial intelligence applications, to China.
- Even foreign-made chips related to artificial intelligence and supercomputing, which use US tools and software in the design and manufacturing process, will require a license to be exported to China.
- American companies will be heavily restricted in exporting machinery to Chinese companies that make chips of a certain sophistication.
“The latest chip rules are a sign that Washington is not trying to rebuild relations with Beijing. Instead, the United States is making it clear that it is taking this competition more seriously than ever, and is willing to take steps that were once unthinkable. Prakash said.
What impact will US restrictions have on China?
Semiconductors are some of the most important technological products. They get into everything from smartphones to cars to refrigerators. But they are also considered key to military applications and the advancement of artificial intelligence.
As geopolitical tensions between China and the US have risen in recent years, technology, and in particular sensitive areas like chips, have been drawn into the fray.
Artificial intelligence, quantum computing and semiconductors are areas that China has identified as frontier technologies wants to boost its domestic capabilities. But the new US rules will make it extremely difficult, particularly in the area of chips.
“The United States has formally changed its goal from overtaking China in the semiconductor industry to actively denying it access to advanced chips,” Pranay Kotasthane, chair of the high-tech geopolitics program at the Takshashila Institution, told CNBC.
“China’s homegrown chip sector will be hampered by these extensive controls.”
The nature of the supply chain.
The reason US export controls could be so effective is that they could touch various parts of the semiconductor supply chain, including those not directly based in the US or controlled by American companies.
That comes down to the global nature of the chip supply chain, but also how very few companies control the power and expertise.
The United States, while strong in many areas of the market, has lost its dominance in manufacturing. For the past 15 years or so, Taiwan TSMC and South Korea Samsung have come to dominate the manufacture of the world’s most advanced semiconductors. IntelAmerica’s largest chipmaker, fell far behind.
Reinventing the wheel will be much more expensive now (for China).
Pranay Kotastan
Takshashila Institution
Taiwan and South Korea account for about 80% of the global foundry market. Foundries are facilities that make chips that are designed by other companies.
However, the US still has strong companies in the area of design tools, many of which are used by other companies in the supply chain. For example, it’s unlikely that the advanced chips made by TSMC haven’t used American tools somewhere along the way. In this case, US export restrictions to China will apply.
Washington has used this call foreign direct product rule before in the poster child of the technological tensions between the United States and China of the Trump era: Huawei. Under those rules, Huawei could not access the most advanced chips that TSMC made and that were designed for its smartphones. Huawei, once the number one player in the smartphone market, saw its phone business paralyzed.
But never has such a rule been used so widely by the US.
China will have to ‘reinvent the wheel’
Meanwhile, other countries could be under pressure not to send certain equipment to China. For example, the latest rules mean that companies will have to obtain licenses to ship machinery to Chinese foundries if those facilities make certain memory chips or logic semiconductors that are 16 nanometers, 14 nanometers or smaller.
The nanometer number refers to the size of each individual transistor on a chip. The smaller the transistor, the more of them can be packed into a single semiconductor. Generally, a reduction in nanometer size can produce more powerful and efficient chips.
China’s most advanced chipmaker, Semiconductor Manufacturing International Co., or SMIC, currently makes 7nm chips, but not on a large scale. This generations behind companies like TSMC and Samsung that they have a roadmap for making 2nm chips.
But to make chips of this sophistication on a large scale, with lower costs and more reliability, SMIC and other Chinese foundries will need to get their hands on specific equipment called an extreme ultraviolet lithography machine. The Dutch firm ASML is the the only company in the world capable to make this critical piece of machinery.
If it falls under US export restrictions or comes under pressure from Washington not to sell to Chinese companies, it could hamper progress among the country’s chipmakers.
ASML underlines the complexities of the semiconductor supply chain.
“Semiconductor production is a hyper-globalized supply chain. Being disconnected from this engine will mean that Chinese companies must ‘reinvent the wheel’ domestically. China’s semiconductor industry will need a much larger infusion of capital and talent to absorb this impact,” Kotasthane said.
But this will be an uphill climb.
Kotasthane said that China will be able to make advanced chips even without ASML machinery “but the yield will be much lower, which means higher costs and lower reliability.”
Meanwhile, Chinese companies will have to rely on “low-end” domestic alternatives for design tools, said Kotasthane, who have typically obtained from American and Japanese firms.
Washington’s latest rules also require any “US person” to obtain a license if they want to support the development or production of semiconductors at certain manufacturing facilities based in China. This effectively cuts off a key pipeline of American talent to China.
“Reinventing the wheel is going to be a lot more expensive now,” Kotasthane said.