This week, four Taiwanese companies were found to be “helping [Chinese tech firm] Huawei Technologies Co. build infrastructure for an under-the-radar network of chip plants across southern China,” Bloomberg reported. In response, Taiwan’s Economic Affairs Ministry said it will investigate whether U.S. semiconductor sanctions have been broken. The initial report and Taiwan’s reaction to it tells us where sanctions may be going next.
As things stand the sanctions are designed to block exports of materials of U.S. origin, rather than all interactions with Chinese companies. The Taiwanese companies have denied being involved in chip-making itself, a sentiment echoed by Taiwan’s Economic Affairs Minister, Wang Mei-hua (王美花). “The companies offer services in wastewater and environmental protection processes, and they are not involved in critical technology,” she said.
This tension, between Bloomberg’s coverage and the content of current U.S. sanctions, hints there may be an appetite for the sanctions to get wider and tighter. Which chimes with what chip watchers have been saying for a while.
“I wouldn’t be entirely surprised if … we end up with some tighter enforcement of the rules governing transfer of tools, and in addition I think we should expect to see more conversation about broadening the controls to other spheres,” Chris Miller, author of “Chip War: The Fight for the World’s Most Critical Technology,” told a Nikkei Asia webinar last week.
Miller was responding to a discussion about recent chip-making progress in China, which includes the development of an advanced 7-nanometer chip described as “the most Chinese chip yet.” He has previously predicted that sanctions may begin to focus on less advanced chips, but here he suggested instead that, “Some of the chemicals and materials, for example, which are not currently generally controlled and could well come under control in future.”
The political willingness to go in this direction is already beginning to solidify. U.S. National Security Council spokesman John Kirby told Bloomberg that while he was “confident in the export controls that we have in place,” the U.S. is “going to constantly look at the regime, and if it needs to be changed or adjusted, we’ll absolutely do that in the future.”
In Taiwan, signs of the same willingness have emerged. Taiwan’s government plans to announce “a list of critical technologies it wants to protect from the reach of China,” Wellington Koo (顧立雄), secretary-general of Taiwan’s National Security Council, told Nikkei Asia on Thursday. This could “protect” core technologies and industries including “semiconductors, agriculture, aerospace and ICT [information and communication technology],” Koo said, and it “will deal with investments, manpower, operations and technology transfer in these areas.” That is explicitly broader than U.S. sanctions on sales and technology transfers.
China’s response to these kinds of sanctions has previously been relatively “muted,” but there, too, the recent ban on state employees using iPhones acts as a “threat” to foreign companies, according to Miller. The signal is that these companies’ products are “replaceable,” Miller says. Additionally, China’s exports of gallium and germanium — rare minerals used for manufacturing semiconductors — dropped to zero in August following the imposition of government export controls. There may be more to come.
“Regions like the United States, Europe, and South Korea have already started to plan and invest in medium to long-term risk mitigation strategies,” an International Data Corporation analyst told Domino Theory in response to emailed questions. China must, they added, “observe the subsequent effects [of the gallium and germanium restrictions] before taking further actions, such as imposing bans on other materials.” They also warned that other countries are considering gallium and germanium restrictions “which is the one we have to pay attention to.”
The countries involved still face tough decisions. Further sanctions will begin to hurt U.S. and other companies outside China more than the existing ones do, noted Nikkei Asia Chief Tech Correspondent Cheng Ting-fang (鄭婷方). The IDC echoed her view. Dan Hutcheson, vice chair of TechInsights, warned that China would not be able to fully replicate the quality of global supply chains for every element of semiconductor production. Despite this, there remains the feeling of more to come.