Leading Chinese tech company Huawei can now “make chips at the equivalent of 7 [nanometers], the powerful semiconductors typically used in 5G phones,” according to an exclusive story from Reuters. This development could suggest the U.S.’s banning of advanced semiconductor exports to China is inadvertently driving internal progress of the Chinese semiconductor industry. However, there remain reasons to be skeptical about what this means.
The 2022 U.S. ban covers chips that have both high performance and fast interconnect speed, as well as equipment knowingly used to make advanced logic or memory chips below certain sizes or above specified numbers of layers. These advanced semiconductors can be used to power cloud data centers, edge computing, smart cities, fully autonomous vehicles and 5G internet in mobile phones, although U.S. government statements have emphasized blocking off artificial intelligence development and military technology progress as the driving force behind the ban.
However, crucially, expert predictions on the likely long-term effects of the ban diverged as soon as it was introduced. Some believed it would hold China’s technological and economic progress back, while others believed it would accelerate its internal technological progress by forcing it to rely on its own technology. And that’s the debate Huawei’s apparent progress arrives into.
In the latter camp, Dan Wang, a technology analyst at Gavekal Dragonomics, told The New York Times’ Ezra Klein Show earlier this year that “U.S. export controls can hobble a lot of China’s most advanced technology companies. But over the longer run, does this decelerate or accelerate China’s ability to manufacture more advanced chips? I expect that it will accelerate.” Wang added that he wasn’t sure about this prediction — “I could be wrong on that” — but he also provided the broad logic for it: “Before the sanctions came in, Chinese companies were uninterested in buying obviously inferior Chinese chips. Now they have no choice but to buy them, and that has given them an ‘enormous push.’”
On the side of the skeptics, Chris Miller — author of Chip War, a book on “the decades-long battle to control what has emerged as the world’s most critical resource” — has made the opposite case. Interviewed by the journalist Noah Smith earlier this month, he said it was “hard to sustain the argument that the controls will make China pursue a strategy of reducing dependence on the U.S … because that was already China’s strategy … They [have already] launched a major industrial policy program focused on the aim of ending reliance on the U.S., spending billions of dollars annually.” He added that he also hadn’t seen anyone spell out precisely how the imposition of controls would reshape the political economy or the relationships between Chinese firms and government in a way that would lead to smarter policy.
“I’m skeptical, and I think loss of access to chipmaking tools and the broader chilling effects on expertise transfer will make China’s catch up efforts harder,” he said.
Now, news around Huawei’s potential progress on producing chips for 5G phones has some commentators declaring that the likes of Miller are being proven wrong. “If true, then China is replacing Western chip tech much faster than any Western observer expected. Tech sanctions don’t work for very long,” American economic strategist David Goldman tweeted on Wednesday. “Used to be that emerging economies would protect infant industries from competition by keeping foreigners out. Now the foreigners are keeping themselves out, so that Chinese competitors find themselves without natural enemies. We are so dumb,” he added later.
But not everything supports such a solid assessment.
In the first instance, the precise nature of the secretive advances from Huawei is still the subject of speculation. The Reuters story says analysts “believe” Huawei’s own electronic design automation (EDA) software could be being paired with Chinese chip manufacturer Semiconductor Manufacturing International Co’s (SMIC) manufacturing process “to make chips at the equivalent of 7 [nanometers].” But regarding the short-wavelength ultraviolet light used to create intricate patterns on silicon wafers, it only offers the point that some analysts have previously “found signs SMIC has … managed to produce 7 [nanometer] chips by tweaking simpler [Deep Ultraviolet (DUV)] machines it could still purchase freely” from a Dutch manufacturer — as opposed to using the most up-to-date Extreme Ultraviolet (EUV) machines which are restricted.
On that basis, it is not yet clear from this story what degree of technology has truly been replaced and what precisely is new. This is important, as even last year there were reports of 7-nanometer chips being produced in China using DUV machines, and there may be limits to what it can ultimately achieve.
Scalability also presents a major issue. Speaking via email, Chris Miller responded to the question of whether Huawei’s proposed progress ran counter to his expectations by saying: “The questions to be asked with any claim like this are ‘at what volume’ and ‘at what yield?’ The news reports thus far suggest that volumes will be small and yields will be quite bad. If the reporting is correct, Huawei is a long way from commercial viability in this type of semiconductor.”
The reporting he refers to: In terms of volume, Reuters says that “5G shipments would be limited to around 2 million to 4 million units,” according to one research firm, and 10 million according to a second firm. In terms of yield, which refers to the percentage of chips that aren’t discarded because they are of a high enough quality, Reuters says that “the forecast yield rate [is] less than 50%.” For context: Bloomberg research has previously concluded that “Anything less than 90% is a problem” in terms of costs. World-leading semiconductor manufacturer TSMC has previously revealed that it took around a year and a half to move from a yield rate of around 65% to around 90% when it developed its own 7-nanometer chip, entering full-scale production in 2019. TSMC’s 3-nanometer chip is currently the world’s most advanced, and it plans to offer a 2-nanometer chip in 2025.
Thus, the Huawei numbers may not yet prove as much as they seem to about China’s progress. But they do mark this as an area to watch out for in coming months to see if any more signs of progress emerge. If you can make it through the technical details, it’s a story that potentially holds massive sway over who holds power in the world, and it’s an area where some very well-informed people have quite different opinions about how it will play out.