Like a sense of deja vu. Huawei unveiled its new Mate 70 and Mate X6 smartphone ranges a few days ago. The latter probably work with “Kirin” electronic chips, designed locally by the Smic founder. And the devices are equipped with an in-house operating system, HarmonyOS Next, and therefore not Android (Google). As last fall with the Mate 60 range, Huawei is sending a message tinged with patriotism. The brand wants to prove that it can produce a 100% Chinese (or almost) 5G phone, competitive with the iPhone. Some generative artificial intelligence (AI) features even appear, this time, on the Mate 70 sales brochure, like its Apple rival. A miracle, considering the American measures hitting the semiconductor industry in China for more than two years now. Precisely so that this kind of technological breakthrough does not happen. Or as late as possible.
The United States is spreading its canvas a little further. On Monday, December 2, Washington once again imposed on Beijing a series of sanctions and export controls targeting 140 Chinese companies specializing in the production of chips, in particular those with high bandwidth (HBM), very useful in the race for ‘AI. The Biden administration is also cracking down massively against manufacturers of equipment used to design them. “The notion of extraterritoriality is reinforced, under the regime of Foreign Direct Product Rules. Any finished products manufactured abroad and containing an American component are likely to be banned from export, explains Juliana Bouchaud, analyst at the Rhodium Group, an independent research organization. The control will extend to the maintenance and service of machines used in China, which could further affect the country’s current production capacities.
Front companies, undercover purchases…
Not sure that this third load in three years will really hamper Chinese production. This is the main pitfall of sanctions and export controls: “The more the United States increases these types of measures, the more they once again encourage the indigenization of China in the production of semiconductors,” recalls Juliana Bouchaud. At the same time, Beijing continues to invest massively in its semiconductor industry. Earlier this year, the government launched the third phase of its “National Investment Fund for the Integrated Circuit Industry”, also called “Big Fund”. A portfolio with more than $47 billion, in order to stimulate the manufacturing of sophisticated chips in the country and move towards autonomy.
An objective which dates from before the era of American sanctions. The first yuan was released as part of the “Made in China” plan, adopted in 2015. According to a recent study by TechInsight, Chinese production capacity is expected to increase by 40% over the next five years. In total, more than 140 billion dollars have been invested over the past 10 years.
And if the American “cat” continues to rage, it is because the Chinese “mouse” is very restless. Front companies, undercover purchases of chips from Taiwanese leader TSMC, industrial espionage, production abroad in countries not affected by sanctions… Beijing has learned to play with these measures, sometimes with the consent of European and American companies wishing to mitigate the consequences on their turnover, on site. Meanwhile, investments in research and development (R&D) are exploding, stimulating innovation. In October, a Wuhan-based laboratory reported advances in silicon photonics. A potentially useful technology, in the near future, in order to do without lithography machines which China is deprived of to produce cutting-edge chips. The examples are numerous.
“Huawei could surprise the world again”
Added to these responses are some possible errors or strategic oversights on the part of the United States. Observers are surprised by the absence of ChangXin Memory, a major Chinese player in high bandwidth chips (HBM), in the list of those newly sanctioned. Or the lack of severity, so far, towards manufacturers of equipment intended for the production of chips. “Trying to stop China’s semiconductor industry from moving forward without addressing its domestic toolmaking capabilities is like trying to stop a fisherman from catching bigger fish simply by denying him bigger ones. “He’ll still get there in the end,” said Meghan Harris, an export control expert at Beacon Global Strategies, a consulting firm. Financial Times.
The problem is that the United States is moving slowly to correct them. “Chinese clients and their suppliers have demonstrated infinite skill in finding legal loopholes, working around the clock, while our government only manages one update per year. This lag in the pace of legal innovation is problematic,” writes Dylan Patel of analytics firm SemiAnalysis. In fact, Beijing has learned to anticipate. “Just as Huawei accumulated a stockpile of American chips equivalent to several years of demand, during a period before US export controls, Chinese semiconductor manufacturers acquired a stockpile of American equipment and foreigners in anticipation of strengthened export controls coming in the near future,” notes the Center for Strategic and International Studies, in a folder published at the end of November.
The lever of rare metals
“Next year, Huawei and the Chinese semiconductor industry could surprise the world again,” says Paul Triolo, a leading Chinese tech specialist at the DGA consultancy group, concluding an article published in the journal American Affairsa few days ago. Why not in GPUs? This market dominated by Nvidia and essential to the development of generative AI is also seeing Chinese competition emerge, with Huawei’s Ascend 910B. The tension is particularly strong in this sector. If China remains behind its American competitors, the fear is that the gap will become increasingly difficult to control. “Continued U.S. pressure on China’s semiconductor industry will eventually force these developers underground and make it harder to measure China’s progress in AI. This will limit U.S. visibility in an area affecting its national security”, believes Paul Triolo.
It is difficult to predict what the Trump administration and its new Commerce Secretary, Howard Lutnick, will do. But the Republican launched hostilities against China five years ago. Experts therefore anticipate ever greater firmness, and the mobilization of other key countries in the semiconductor production chain, such as the Netherlands or Japan. With a possible expansion to new sectors such as “biotechnologies”, comments Juliana Bouchaud, of Rhodium Group.
China could, however, become increasingly offensive. The Asian giant dominates the extraction of rare metals such as gallium, germanium or even tungsten or zinc. Materials essential to green industry, telecommunications, or defense. Since 2023, Beijing has gradually closed the floodgates. On December 4, Chinese authorities went further by banning all sales of gallium, germanium and several other metals to the United States. The escalation, which worries Westerners, however, remains under control. China knows that it could stimulate the resilience of America and its allies in this sector. Finally, a bit like her, in semiconductors. Above all, economic warfare requires a lot of tact.
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