China’s Huawei, a technology giant that has been facing Western-led sanctions for years, has unveiled its Huawei Mate 60 Promade, a breakthrough development in the ongoing chip war between the United States and China, According to the analysis of TechInsights, the smartphone is powered with a 5G chip Kirin 9000S processor based on the 7nm (N+2) technology. The chip is designed by Huawei’s division HiSilicon and is developed with Semiconductor Manufacturing International Corporation’s (SMIC) N+2 technology.
Both Huawei and SMIC are Entity List companies. The U.S. Bureau of Industry Standards (BIS) in October 2022 updated the U.S. Entity list that names companies that are scrutinized. For American companies to do business with the listed companies requires a prior license by U.S. government authorities. Experts anticipated a sharp cut in the flow of technology and equipment from the United States to China that will effectively limit China’s growth in the chip industry and throw Chinese chip capability decades behind the United States’ advanced chip capabilities. However, Huawei’s resurgence with a 7nm chip capability raises doubts about the efficacy of Western sanctions among those who discounted China’s capability in microchip manufacturing and now wonder how China has been able to mass produce 7nm leading-edge semiconductor technology despite embargos.
The 2022 October regulations introduced by the BIS clearly stated that “No company should be assisting Chinese companies with below 14-nanometer using American technology.” Huawei’s resurgence with 7nm chip-making capability marks a failure of America’s entity list and licensing regime. One, the companies on the entity list are not the only companies that ensure the flow of equipment to China. Say, if ten companies are enlisted, ten new companies would emerge to ensure an unhindered flow of business with the American suppliers and vendors, which are also looking forward to running a profitable business with Chinese buyers. A host of shell companies have been set up in China to trade with American equipment makers to bypass the sanctions. Second, several companies dealing with American sellers are ultimately routed to SMIC, especially in the wake of October 2023 licensing requirements. In many cases, these companies will attain licenses just to ensure final shipping to SMIC. According to an industry expert, Dylan Patel, licenses are being handed out as candy, and the entity list is not really bulletproof.
Another loophole lies in understanding the chip development capability within various thresholds on the nanometer scale. American shortsightedness lies in underestimating the capability of Chinese ways of acquiring high-tech with clandestine means. The ban on equipment sales used only for the production of high-end chips never banned the business in equipment and technology used in producing lower-end chips. The Chinese strategy lies in producing the leading-edge chips by repurposing the lagging-edge tools and equipment. For example, a metal disposition tool that is used for a 28 nm chip can also be used in a 10 nm chip.
Also, it is not possible for China today to make 7nm or 14nm chips without external support. Since China’s semiconductor industry is developed sporadically with no company providing end-to-end solutions to producing even lagging-end chips, it's impossible to build a 7nm capability without the support of Western tools, machinery, and software provided collectively by the global players in the value chain. TechInsights in their hardware analysis also revealed that SMIC has access to sophisticated EDA tools that they are not supposed to have. The anticipation that banning China’s access to Dutch ASML’s advanced lithography tools would render China with no facility to implant circuits on silicon wafers turned ineffective. The DUV tool 1980i was used by both TSMC and Intel in their production of 7nm chips. The same tool can be shipped to China which can be used by the Chinese manufacturers for 7nm or even 5nm chips. Equipment distribution companies like Applied Materials, Tokyo Electronics, Kokusai, Lam Research, ASM International, etc. have been selling equipment for 28nm chips to China, which can also be used for the production of 7nm chips.
Huawei’s Kirin 9000S processor is similar to Intel 10 which was renamed to Intel 7. According to American experts, the technological equipment that was used in the production of Intel 7 was not restricted from being shipped to China under the export control regime. Also, specific restrictions are built around equipment devices that lie under a particular threshold. For example, restrictions of EDA (a chip designing software) tools are imposed only for 3nm chips. That means specific equipment used for above 5nm chips can still be accessible to the Chinese, and especially to various Chinese shell companies that have proliferated to skirt sanctions. The Chinese have exploited the grey areas in the export control measures that hardly considered that the equipment being sold to the lagging-edge buyers can also be used by the leading-edge manufacturers. This policy loophole is very clear and having this ignored by regulators clearly reflects a lack of policy insight.
Also, there’s doubt about how deep political will is among allies like Japan, the Netherlands, Germany, and South Korea to restrict the flow of their instruments to China, which is one of their largest markets. If the Netherlands is selling spare machine parts to China, will they not retrograde an outdated tool with a better tool to bypass the rules and carry on their business with China? Thus, blind negligence to regulatory restrictions or the support provided by other countries has also contributed to China getting material supplies.
China’s successful launch of a 5G-powered device with 7nm technology reveals that Western regulators have failed to understand the intricacies of semiconductor manufacturing and simply anticipated a completely restricted flow of technology to China with a bunch of export control regulations. It was a strategic mistake of policymakers and pundits who underestimated China’s perseverance in pursuing trial-and-error methods and well-known competence of acquiring talent, technology, and tools through back channels. As the applied rules were practically irrelevant, Huawei’s 7nm capability is not even a breakthrough, rather it came as a surprise due to the repeated lack of determination by American policymakers to see it through. The stated loopholes in the regulations not only enabled the Chinese manufacturers to source exactly what America did not intend to but rather helped in spurring a wave of indigenous manufacturing capability in the chip segment.
Megha Shrivastava is a Dr. TMA Pai Fellow and a Doctoral Research Scholar at the Department of Geopolitics and International Relations, Manipal Academy of Higher Education, India. Her work focuses on China’s ICT industry. She also writes on the semiconductor industry and the U.S.-China technology conflict.
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