The China-US chip wars: Why technology-denial regimes don’t work
Experts believe that going below 7nm may not be possible with 28nm lithographic machines. But can using a combination of chips and not such high-density chips provide China an alternate route?
The chip wars between the US and China show no sign of abating, as the US tries to stop the influx of advanced chips—sub 7nm chips, GPUs, 5G chipsets—and the lithographic machines that manufacture such chips.
The US had started with sanctions that made it impossible for Huawei to manufacture its top-of-the-range processors at the heart of 5G mobile phones. The US had then progressively widened the sanctions to advanced chip manufacturing lithographic machines and high-end computing processors, like the GPUs from Nvidia.
These GPUs power the new thrust on generative artificial intelligence (AI) and large language models like ChatGPT. Nvidia has emerged as the global heavyweight in the electronics manufacturing sector with its GPUs, a market capitalisation of 1.2 trillion dollars and becoming the world’s 6th largest company by market cap.
The recent news of Huawei releasing its Mate 60 Pro mobile phones, which it claims are ‘satellite- compatible’, has shocked the US industry. Various tech experts have examined the phone, including those from Bloomberg, and conclude that Beijing is ‘making early progress in a push to circumvent US efforts to contain its ascent’.
The chipset—according to a China Global Television Network (CGTN) post on X—is Huawei’s ‘first higher-end processor’ since the US imposed sanctions. The chipset was manufactured by Semiconductor Manufacturing International Corporation (SMIC).
There is now enough evidence produced by Bloomberg and other independent analysts that these claims are valid. In that case, it shows again that technology denial regimes do not work. The Semiconductor Industry Association and Boston Consulting Group had argued this in their 2021 report ‘Strengthening the Global Semiconductor Supply Chain in an Uncertain Era’.
They had said that delinking from the Chinese market would lead to China developing its indigenous manufacturing base and deny the US companies the large surplus they currently make from the Chinese market.
It was also the same warning that Nvidia’s chief had delivered only a few months back: “If (China) can’t buy from… the US, they’ll just build it themselves.” Now we came to know that SMIC has successfully manufactured 7nm chips for a bitcoin miner using its existing 28nm ASML lithographic machines.
These machines use the older deep ultraviolet (DUV) process—not yet under sanctions— and not the latest extreme ultraviolet (EUV) lithography process, which is under sanction. Without the EUV machines, any chipset below 7nm may be difficult, if not impossible, to manufacture at scale.
But with 7nm technology, Huawei’s latest Kirin processors seem to have matched the latest iPhone speeds, if Bloomberg and other US tech websites are to be believed. If this was not bad enough, Liu Qingfeng, the founder of HKUST Xunfei, an AI company, stated at the Chinese Entrepreneurs Forum 2023 that Huawei has developed an AI GPU that matches the capabilities of Nvidia’s A100 GPU.
The US technology denial regime had banned the export of the latest version of A100 and the even more powerful H100 GPU chips to China. Even some west Asian countries (reportedly Saudi Arabia and UAE) have come under the ban due to suspicions that China may be using them to get around US sanctions on GPUs.
Now HKUST Xunfei and Huawei have jointly announced that they will create AI platforms powered by Huawei processors, and the Chinese AI companies will no longer be limited by the denial of A100 or H100 GPU processors. Liu Qingfeng did not provide the new GPU’s specifications, so the claim needs to be verified.
Unlike Huawei’s 5G mobile claim, which independent observers have tested, this is still a claim made by a close associate of Huawei. But, given Huawei’s record on 5G mobile phones, the possibility of a similar breakthrough for GPU design cannot be discounted either.
The fear of the chip manufacturing companies for quite some time has been that China is the biggest market for their products. Whether it is Nvidia, Apple, Intel, Qualcomm, if the Chinese market is closed to them, it will be a huge loss.
The US administration, however, believed that China would not be able to work around the chip bans and would either succumb to the US and sue for mercy or be relegated to being no longer a peer technologies competitor.
This belief was the basis of the sanctions regime that the US built. And temporarily, it did hit companies like Huawei hard and posed an impending threat to the entire hi-tech sector in China. However, the Chinese response of independent product development was foreseen by the Semiconductor Industry Association and Boston Consulting Group.
Their argument was that the Chinese market provides a large enough surplus for the US companies to fund a ‘virtuous cycle’, meaning that surplus from China, the biggest market for chips and hardware, funds the US innovations. If the US and China decouple, the US will lose its innovation edge. Forcing China (through such sanctions) to invest in innovation means that China may have a temporary setback, but will end up with a long-term gain.
Speaking to the Financial Times in May, Nvidia CEO Jensen Huang, too opined that the US tech industry is at risk of ‘enormous damage’ from the chip war. He said that the US export controls introduced by the Biden administration against the Chinese semiconductor industry had left Nvidia with ‘our hands tied behind our back’ and unable to sell advanced chips in one of the company’s biggest markets.
He had warned of China’s capacity to replace the US manufacturers, a warning that seems to have come true only a few months down the line. It was the same warning that the Semiconductor Industry Association had given two years back.
The US and its allies still have a trump card in ASML, the company that builds the most complex and hi-tech machine in the world: the lithographic machines. For any chip that needs to go below 7nm, EUV lithography is a necessity.
Can ASML EUV machines make all the difference in the race between the US and China? As of now, the Chinese company that is building lithographic machines, Shanghai Micro Electronics Equipment, has yet to launch its 28nm machine. If it indeed succeeds—and it is still a question mark—then SMIC, which currently uses the older 28nm lithographic ASML machines, may not be hit by the proposed US ban on sales of even these machines to China.
Most experts believe that going below 7nm may not be possible with 28nm lithographic machines. But how critical are sub-7nm chips? Can more advanced packaging, using a combination of chips and not such high-density chips provide China an alternate route? These are questions for the future. De-linking or as the US now calls it, de-risking, does not work, not for large economies and not forever.
(IPA Service. Courtesy: People’s Democracy)
Published: 20 Sep 2023, 8:38 AM