Opinion | Potential US restrictions on SMIC show the need for new foundational tech
By Tom Fowdy
Over the past year or so, it has been an on-and-off speculative story in the western mainstream media that the Biden administration may be about to impose additional restrictions on Shanghai-based Semiconductor Manufacturing International Corp (SMIC), which is China's largest semiconductor producer. Already long since added to the Commerce Department Entity List and a US investment ban, the United States has built a strategy of attempting to contain the company's rise by depriving it of high-end semiconductor manufacturing equipment, in particular the Extreme Ultra-Violet (EUV) Lithography machines produced by ASML of the Netherlands, required to produce the smallest node semiconductors.
However, it is clear that there is an ongoing debate within the US Presidential administration as to whether these restrictions are enough, leading to constantly fluctuating proposals as to restrict the export of even more semiconductor equipment with the view of trying to prevent the company from producing chips at the 14nm and below, which it has had the capability to do so since 2019. The motivation behind such proposals stems from the fact that even though the company is locked out of producing the smallest node semiconductors, restrictions have nonetheless had only a negligible and its income and market share have continued to grow, with revenue increasing by 66% in the first three months of 2022.
This has seen SMIC break into the top 5 global semiconductor producers. With ample revenue, the firm is also investing heavily in expanding foundry capacity, whilst it is also investing in new chip packaging technologies in order to enhance lower node chips and make them more effective with the view of getting around external restrictions. As a result, the answer in Washington is to contemplate even more restrictions, which may be tempting given Biden is under growing pressure to concede on tariffs on Chinese goods, a move seen as politically compromising.
Containing Beijing's rise in semiconductor technology is one of the key tenants of the American strategy against China. The US perceives advances by China in the field of semiconductor production will erode its dominance in high-end technologies and military supremacy, as a result, the US has gone all guns blazing in the bid to try and halt China's advance. This includes a growing embargo on exports via the entity list, usage of extraterritorial jurisdiction to veto China's takeovers of foreign chip and semiconductor firms, a strongarming of Taiwan's TSMC to build excess capacity in its allies, and an attempted cut off of key manufacturing technologies with a particular focus on ASML. The United States leverages its advantages in this field by weaponizing ownership of key patents of foundational technology which the global semiconductor industry has grown out of, with Huawei's struggles being the most explicit demonstration of US power in this field.
However, there are serious questions as to whether further restrictions on SMIC in particular would be effective at this stage. Since US technology sanctions against Chinese firms commenced in 2019, the Chinese market naturally responded with a very aggressive indigenization drive which has resulted in a "hoarding" process of older semiconductor manufacturing and lithography equipment. Although representing lower nodes, Chinese firms hoovered up such machines from Japan and South Korea on a massive scale. This market fire-sale also involved newer technology too. In the first quarter of 2021, ASML's sales to China noticeably exceeded any other country for the first time, showing how Chinese firms are frontloading the purchase of lithography equipment whilst they can still get it.
Given this, any new sanctions against SMIC by the US are unlikely to yield serious results. Of course, continued dependency on foreign-made lithography equipment remains a noticeable strategic weakness for China, especially if for that matter in the unlikely scenario Washington succeeds in one of its long-held, albeit ambitious, multilateral proposals of coordinating a policy of "denial" of selling lithography machines to China between Japan, South Korea and Taiwan region. This means in the long run, China must continue to press ahead in developing its own foundational semiconductor technology base. Its industry is growing in spite of US sanctions, and as a recent Time magazine headline reads: "U.S. Sanctions Have Helped China Supercharge Its Chipmaking Industry". However, attempts to choke it will continue and inevitably tighten as it presses ahead, with Huawei's example continuing to stand as an example of just how easily exploited these dependencies can become when a push comes to a shove.
The author is a well-seasoned writer and analyst with a large portfolio related to China topics, especially in the field of politics, international relations and more. He graduated with an Msc. in Chinese Studies from Oxford University in 2018.
The views do not necessarily reflect those of DotDotNews.
Read more articles by Tom Fowdy:
Comment