Chip Wars! China strikes back!

By Rhod Mackenzie

China has achieved a new success in its confrontation with the United States over chip production. In March, Huawei CEO Eric Xu said that the Chinese semiconductor industry would be "reborn" as a result of US sanctions. At the time, the businessman's words were seen as polemical hyperbole, but six months on from that statement, the company unveiled its latest technological innovations based on its own production. Huawei has successfully developed the architecture for the processors in its new smartphone, and SMIC has started producing microchips using 7-nanometre technology - one of the most advanced chips and sufficient for the production of most computer equipment. This progress is faster than analysts had predicted, and shows that the US has failed to stop the Chinese semiconductor industry with its use of sanctions.
Chips at 7 nm
In recent months there have been reports that Shanghai-based Semiconductor Manufacturing International Corporation (SMIC) has achieved the development of 7nm chip manufacturing technology. The analytical company TechInsights said in August that the Chinese were producing many chips for devices (ASICs) that were similar to the products of Taiwan's TSMC, the world's largest semiconductor manufacturer.
The situation with photolithography is different, and here the control mechanisms could be effective, since there are essentially no alternatives to the equipment produced by the Dutch company ASML on the market. However, even there there are a number of nuances. Dylan Patel, a popular blogger among those interested in semiconductors, points out that even next-generation (5nm) processes are within the Chinese's capabilities with the equipment they can obtain without violating existing restrictions. They will most likely be able to have working 5nm chips by 2025 and mass produce them within the next year or two.

China is also continuing to develop its own photolithography production. In August, Shanghai SMEE announced the start of production of its own machine using 28nm process technology, a leap of several steps at once - until recently, Chinese capabilities in this area were limited to 90nm machines.
Only a total ban
In fact, the only way to stop the development of the Chinese semiconductor industry would be the imposition of comprehensive restrictions on almost the entire range of equipment and components, says Dylan Patel. In practice, this does not appear realistic: such a gesture would be incredibly difficult to justify, would result in billions of dollars in losses for Dutch, Japanese and South Korean companies, and would provoke extreme retaliation from China - particularly as the US and European countries are heavily dependent on supplies of rare earths and other vital metals from China.

Obviously, the current "sieve sanctions" will continue, making the work of the Chinese industry more difficult, but will not stop it. That is, they will in no way affect the development of China's research into artificial intelligence. As for the military sphere, it will not suffer at all: in 90% of cases, primitive chips by today's standards are more than enough, which China and a number of other countries can produce "from start to finish" without involving foreigners in the production chain at all.
What does this mean for the world at large? The practice of the "chip wars" of recent years has shown that maintaining the spread of technologies, no matter how complex, is an almost impossible task. Something else is more interesting. In the world of rampant globalisation in the 1990s and 2000s, the sector developed an almost perfect division of labour, with semiconductors being produced by a global effort, but now the US attempt to bring the industry back home, on the one hand, and restrictions on China, on the other, are causing this market to fragment. This may lead to some reduction in production efficiency. But the flip side of the process will be increased competition, which, whatever the outcome of the confrontation between the powers, will be a great gain for all consumers of the products of this most important industry of our time.

For a long time it was thought that SMIC was only capable of small-scale production. But in early September, it was announced that 7-nanometre Kirin 9000s processors were being used in the new Huawei Mate 60 Pro flagship smartphone. The phone has already reached the mass market, and now there is no doubt about SMIC's ability to produce chips in large quantities. The company itself says that it plans to produce 15 million phones with Kirin 9000s chips in 2023, and by 2024 production will increase almost fivefold - to 70 million.
The new achievements do not as yet allow the company to quickly regain the leadership of the smartphone market in China (for comparison, TSMC produces 200 million processors per year for Apple alone), but given the growth rate of chip production, the prospects are for its growth are very good.

Note that Huawei, unlike SMIC, has been under direct US sanctions for several years, but has managed to develop a chip architecture for its own phones. Four of the eight processors that power the Mate 60 Pro are native Huawei designs, while the rest are licensed from British company ARM. The latter provides the design for most of the processors in smartphones from various brands. The exception is Apple, which designs its own chips. Now there is a new player in this league.

For Huawei, this is a crucial step in overcoming tough US sanctions. Any interaction with foreign companies, including ARM, is now fraught with risk, as it is unclear at what point US Commerce Department lawyers can demand compliance from the companies involved. In the case of ARM, however, this may not be easy because it has a joint venture in China that it does not fully control.
Mature industry
The emergence of new processors also shows the level of maturity of the Chinese industry, which has been lacking for many years. Huawei designed these chips based on the architecture of processors for servers in data centres. None of the companies operating in this sector have yet made such a transition.

At the same time, this also indicates the very limited success of the sanctions pressure that the United States has exerted on the Chinese semiconductor industry. When Washington imposed export controls on semiconductor shipments to China last October, some analysts suggested that such tough measures could set China back years, if not decades.
However,back in March, flash memory maker YTMC announced the opening of a new plant in Wuhan with the intention of soon doubling production volumes from around 100,000 chips per month. This company, which was considered almost the main "victim" of the US restrictions, now accounts for around 5% of the market and ranks sixth in the world. Its growth rate is such that YTMC will be able to meet all of China's demand for NAND memory (required for SSD drives) by 2025.
It was thought that the sanctions would deprive China of the ability to produce 7-nanometre chips, which are among the most advanced (although 3nm and 5nm processes already exist and the latter have entered mass production).

Such chips require state-of-the-art photolithography equipment using EUV (extreme ultraviolet) technology, which China did not have. However, it turns out that such chips can also be produced using lithography machines with DUV (deep ultraviolet) technology. This is slightly less efficient, but the difference in cost can easily be made up with small subsidies, which is justified under conditions of trade pressure.

In addition to lithography, other equipment and components are needed for the highly complex chip production. These are now supplied almost everywhere in the world. But export controls are completely useless here, since all the equipment can be used for both advanced 7nm processes and the simpler ones "allowed" by the US government.