SMIC's breakthrough shows US efforts to contain Chinese tech are failing

Tom Fowdy
SMIC's outflanking of US sanctions illustrates that whilst there is a long way to go, the White House is ultimately losing this battle to deprive China of tech self-sufficiency.
Tom Fowdy

On July 21, it was reported in Bloomberg that China's leading chipmaker, Shanghai-based Semiconductor Manufacturing International Corp (SMIC) had successfully established 7nm node chips available for export. Their conclusions? That China had successfully mastered this technology despite US sanctions intended to stop it from doing so, with the Biden administration aiming to keep SMIC from surpassing 14nm technology as part of its "technology war" containment effort against China.

Although this seems credible enough, there are several motivations behind the publication of such a story in Bloomberg to keep in mind. Firstly, the US Senate is haggling over a massive chip subsidy bill to American semiconductor manufacturers, which has been controversial. It has been a common element of US political discourse to hype up the "China threat" by giving laser focus to China's achievements in order to drive forward certain policy ambitions, as had been previously done with talk of hypersonic missiles. Secondly, the US administration has long debated placing even tougher sanctions on SMIC on the export of semiconductor manufacturing equipment.

However, the indication that SMIC has already achieved 7nm node technology shows it is already too late for such an option to have a meaningful effect, and such demonstrates that America's attempts to block China's technological development have above all been toothless and, in the long run, bound to fail.

Since the Trump administration taken office, US foreign policy has centered upon the objective to block China's advances in semiconductor technology by increasingly depriving it of access to foreign-made components. This has included listing hundreds upon hundreds (an ever-growing number) of Chinese firms on the US Commerce Department "entity list" banning them from importing high-tech components from the US, using ownership of key patents to interfere in Chinese takeovers of semiconductor firms overseas and veto them and strongarming key lithography firms such as ASML to stop exporting their most critical machines, such as Extreme Ultraviolet Lithography (EUV) machines to China.

In conjunction with this, it has also forced semiconductor firms such as TSMC and Samsung to build capacity in the United States in the bid to politicize and attain over control the entire supply chain for geopolitical purposes.

Although this policy has in the short term created disruptions for companies such as Huawei (who was subject to the tougher "Foreign Direct Product" rule), in the bigger picture America's aims are in fact backfiring and, as a recent Time Magazine headline led with, are "supercharging China's chipmaking industry." Why so? Since 2019, the threat of being cut off from international semiconductor supplies has forced Chinese companies to prioritize a localization drive of their own technology to mitigate business risks. This has involved finding local suppliers where possible, investing heavily in research, and also frontloading the import of lithography machines from overseas in order to preempt the United States. ASML's sales to China, as well as the purchase of older lithography equipment from South Korea and Japan, have surged over the past year.

In conjunction with this, Chinese government has also overseen large-scale investment in the chip sector with the goal of driving up its own national self-sufficiency, with access to semiconductors being not for "military usage" as the US likes to claim, but as a key prerequisite for national economic development.

The results of all these efforts are paying off. China now has 19 of the world's fastest-growing chip firms. As a previous China Daily story notes: "For the first time, three Chinese mainland chipmakers accounted for more than 10 percent of the global foundry revenue in the first quarter of this year." On a year-upon-year basis, SMIC's revenue increased by 39 percent to US$5.44 billion on booming demand.

This means US sanctions to try and contain China's semiconductor industry are ultimately not working. They might be able to bring about short-term problems by depriving access to certain markets or parts, but what they cannot outflank is the strength of China's investment and innovation drive.

America's policy is both unimaginative and negative. One might be able to freeze a small and poor country from the global semiconductor industry, but this is not applicable with China, who has the resources and determination to advance itself. Given this, SMIC's outflanking of US sanctions illustrates that whilst there is a long way to go, the White House is ultimately losing this battle to deprive China of tech self-sufficiency.

(The author, a postgraduate student of Chinese studies at Oxford University, is a South Korea-based English analyst on international relations. The views are his own.)

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