Chip embargo: US curbs will arrest development of Chinese tech

A new round of US curbs on China’s access to US technology has arrived. Previous sanctions on Huawei almost broke the Chinese smartphone and network gear maker. The latest restrictions not only threaten entire sectors but Beijing’s broader policy goals too.

The latest US measures include restrictions on the export of advanced chips used in artificial intelligence as well as curbs on the sale of chipmaking equipment to any Chinese company. The US has blacklisted more Chinese buyers.

Beijing has long wanted to achieve self-sufficiency in chip making. It aims to become the world’s leading centre for innovation in artificial intelligence by 2030. It also targets global leadership in electric cars. China wants to build a centralised data bulwark and network architecture. That requires stable access to the most advanced chips.

The timing is especially bad for China. Its largest chipmaker Semiconductor Manufacturing International Corp began mass-producing 14nm chips last month. These processors are generations behind the latest types made by global peers such as Samsung and TSMC. Making them in volume nevertheless reduces Chinese dependence on imports. It still has no alternative to importing the most advanced 3nm and 5nm chips.

Now mass production of any type of chip will become difficult. Local makers have been catching up rapidly with design and development aspects of chipmaking in recent years. But the final stage — making chips and etching the precise patterns on silicon wafers — remains highly reliant on imported gear.

SMIC uses equipment made by US chip gear makers Lam Research and Applied Materials. Secondary sanctions would extend to Dutch peer ASML, the world’s biggest supplier of advanced chipmaking gear. The US is said to have been pressuring the Netherlands to ban gear sales to China since July. It is unclear whether China could continue to import chips from Taiwan’s TSMC, which also uses US equipment.

Shares in China’s chipmakers, including SMIC and Shanghai Fudan Microelectronics, fell more than 4 per cent on Monday, while Hua Hong Semiconductor Group dropped more than 9 per cent. Those losses are not yet large enough to reflect the risk that restrictions last more than just a few months. The arrested development of local artificial intelligence, data centres, electric and smart cars sectors could easily prove to be the heaviest technological blow the US has meted out to China.