China breaches first line of America’s ‘Great Wall of Silicon’

SEOUL, South Korea — A new smartphone from Chinese tech giant Huawei may have just punched an unexpected hole through the Biden administration’s high-tech defenses.

Just as Commerce Secretary Gina Raimondo was concluding a fence-mending trip to Beijing late last month, the heavily-sanctioned Chinese tech flagship Huawei released its next-generation smartphone, the Mate 60 Pro, boasting 5G operational speeds and apparently defying U.S. attempts to limit the access of Chinese rivals to cutting-edge U.S. technology.

The heart of the Mate 60 Pro, which was subsequently obtained, dismantled and analyzed by global tech media, is a 7-nanometer chipset, the Kirin 9000S, made by China‘s Semiconductor Manufacturing International Corporation, or SMIC. Analysts said the Kirin 9000S marks a great leap forward for Chinese chipmakers and a blow to the U.S. policymakers.

“It completely shatters the announced intent of the U.S. sanctions, which were aimed at preventing China from going below 14 [nanometers], and there they are,” said Scott Foster, a chip expert with Tokyo-based Lightstream Research.

The most advanced new semiconductors — as small as 2 nanometers — remain beyond Beijing’s reach, Mr. Foster told The Washington Times, in part because Chinese firms cannot obtain the needed EUV (“Extreme Ultra Violet”) manufacturing equipment as a result of U.S.-led restrictions.

Even so, the Mate 60 Pro triumph reveals China‘s fast-accelerating chip expertise, while raising questions over the future feasibility of America’s tech embargo, a policy begun by the Trump administration and embraced by President Biden’s economic team.

The U.S. strategy is to choke off chip supplies from the U.S. and its allies to targeted Chinese companies. Washington has leveraged U.S. chip patents and applied political and diplomatic persuasion at both ends of the chip supply chain.

Upstream, the critical companies are Japan’s Nikon and Holland’s ASML, which make the machinery needed to mass-produce the most advanced chips. Downstream, those machines are used by Taiwan’s TSMC and South Korea‘s Samsung, the two biggest global manufacturers of advanced chips.

Huawei, the focus of special U.S. attention because of its links to the ruling Communist Party and its global reach as a smartphone maker and telecommunications contractors, made the technical leap in chip quality for its new phone by stockpiling chip inventory as its foreign supplies shut down.

“The new, tougher sanctions that the U.S. pressured Japan and Holland to sign up to have just kicked in and the shipments of advanced equipment from ASML will stop at the end of this year; they ship what was ordered,” said Mr. Foster. “But this is closing the barn door after the animals have got out, as [Chinese buyers] ordered tons of them and they have ordered from Nikon as well. They have ordered years’ worth of equipment.”

Industry rumors suggest China may have obtained one or two EUV machines, but they would be impossible to use as supply of parts and services has been cut off, Mr. Foster said.

“They will never get EUV unless there is total regime change in the West, or unless China makes it themselves,” he added. “And that is really hard and really expensive.”

Yet SMIC‘s new chips “demonstrate the technical progress China‘s semiconductor industry has been able to make without EUV tools,” TechInsight analyst Dan Hutcheson told the trade industry press. “The difficulty of this achievement also shows the resilience of the country’s chip technological ability.”

President Xi Jinping has made semiconductor self-sufficiency a national priority. Chips are capital intensive, and Beijing is reportedly preparing to launch its third fund — worth $40 billion, its biggest so far — to support its chip sector.

Market clout

China is the world’s biggest chip market, and South Korean and Taiwanese players do not just sell there, they are also invested in Chinese fabrication plants.

The Semiconductor Industry Association reported in 2022 that China retained its status as the globe’s biggest chip market, with sales of $180.4 billion. However, that marked a 5.2% annual downturn, compared to sales into American markets, which saw an annual rise of 16.2%.

Semiconductor activity in the Americas is part-driven by U.S. policy that has compelled players, including Taiwan’s TSMC, and South Korea‘s Samsung and SK hynix to de-risk their global operations by making U.S. investments worth dozens of billions. The policy has sparked disquiet in corporate boardrooms.

Consultancy KPMG, in its 2023 semiconductor outlook report, wrote that the “nationalization of semiconductor technology” represents “the biggest concern on the minds of executives, as this has implications with supply chains, talent acquisition, and access to government subsidies” in the U.S. and Europe.”

For David Goldman, New York-based president of consultancy Macrostrategy, the U.S. approach is politically problematic.

“On the conservative spectrum, you have a variety of views that range from old free-traders who think any interference is bad in principle to hawks who say since China, in their view, violated every principle of free trade by stealing tech and giving state subsidies [and that] you have to fight fire with fire,” said David Goldman, New York-based manager of consultancy Macrostrategy.

“My view is sanctions don’t work, they will blow back on us as the Chinese will massively invest and undercut us on prices,” he said. “We should focus not on making China worse, but ourselves better.”

The Global Times, the state-controlled Chinese news website, mocked the angst sparked by Huawei‘s newest offering, citing reports Western rivals had disassembled the Mate 60 Pro to understand its technology.

“We advise some Americans to deconstruct and reconstruct their concept of China‘s technical development and innovation, in addition to disassembling smartphones,” the website wrote in an editorial Wednesday. “In recent years, not only Huawei but also many other Chinese enterprises have made substantial headway in areas where the U.S. pushed to ban China, such as aerospace, photovoltaics and energy.”