China’s big leap forward in chips faces US opposition

Taipei, Taiwan – China faces an even sharper rise to outsmart the United States and its allies in the semiconductor field as Washington ramps up measures to restrict Beijing’s ability to produce advanced chips and secure dominance of strategic technology.

Last week, Washington placed restrictions on the sale to China of select high-end graphics processor units (GPUs) from Nvidia and AMD, used in artificial intelligence applications and supercomputers.

The move comes on the heels of the US Commerce Department’s announcement last month to ban exports to China of Electronic Design Automation (EDA) software used to produce next-generation chips.

Meanwhile, Washington has been urging East Asian partners, Taiwan, South Korea and Japan to form a “chip-4” industrial alliance to isolate China from the international technology ecosystem, and boosted efforts to develop its domestic industry by passing the CHIPS Act, providing $52 billion in subsidies to companies that The chips are made on American soil.

“The United States is trying to strengthen its central role in the world’s semiconductor ecosystem and ensure that China is unable to produce the most advanced chips,” Chris Miller, author of the upcoming book Chip War: The Fight for the World’s Most Critical Technology, told Al Jazeera.

“Control of semiconductors will not only shape the future of the global economy, from cloud computing to autonomous driving, but it is also fundamental to military power.”

Semiconductors have emerged as one of the fiercest battlegrounds in the intense rivalry between the United States and China. In addition to being the lifeblood of the modern economy, powering everything from iPhones to fighter jets, chips are seen as essential to unlocking technological breakthroughs in the future, meaning that tomorrow’s global power balance can depend on the thin chips being developed today.

China, like other major economies, relies heavily on semiconductor production in Taiwan, the source of more than 90 percent of the world’s supply of high-quality chips, but it has recently made great strides in developing its domestic industry.

In July, researchers at TechInsights reported that China’s National Semiconductor Manufacturing Corporation (SMIC) has likely gained the ability to produce a 7-nanometer (nm) chip, indicating a major leap forward after years of struggling to advance beyond the 14-nanometer node. A semiconductor is typically compared to the gate length of a transistor, with a smaller gate generally corresponding to a larger processing power.

Beijing-backed SMIC is now ramping up foundry capacity, with new plans for a fourth plant in the northern city of Tianjin. SMIC did not respond to Al Jazeera’s request for comment.

China International Semiconductor Manufacturing Corporation is believed to have gained the ability to produce 7nm semiconductors [File: Aly Song/Reuters]

“It’s a massive breakthrough,” Dylan Patel, industry analyst and author of the SemiAnalysis newsletter, told Al Jazeera. “It’s missing some features, but it’s a fully functional node.”

“This is the first real sign that they have broken through a supposedly insurmountable barrier. Now they need to incrementally improve the design and scale production into higher value segments.”

China has been denied access to state-of-the-art equipment for advanced wafer production – extreme ultraviolet (EUV) lithography (EUV) machines – since leading Dutch company ASML was denied an export license after US pressure on Amsterdam.

But Chinese companies can still use less efficient DUV lithography machines, which feature larger beam wavelengths typically used to etch patterns on less advanced chips, to make higher-quality semiconductors.

Although Washington has announced plans to expand its ban on chip-making equipment, China has been stockpiling ASML’s DUV lithography machines, having purchased 81 machines in the past year alone.

“SMIC can manufacture a 7-nm process using a DUV, and possibly mass-produce it, but that doesn’t make it cost-effective,” Ray Yang, a consulting director at Taiwan’s Industrial Technology Research Institute, told Al Jazeera.

“With the precision of a DUV, but you push the technology to its limits,” Yang said, likening it to driving a consumer car at Formula 1 speeds.

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“The rate of return is very low, and therefore, it is not a cost-optimized solution for advanced processors and anything beyond 7nm is simply impossible.”

Yang said SMIC could afford to use less profitable processes to produce advanced chips due to its government support.

“Now that Huawei can’t use foreign foundries, China is relying heavily on SMIC for the chips it urgently needs, most likely for private, non-commercial uses,” he said.

Chinese military formation is out of focus in the foreground with a large banner displaying a portrait of Xi Jinping in the background.
China’s intended uses of advanced chips include advanced weapons for its military [File: Damir Sagolj/Reuters]

Those non-commercial uses include advanced weapons for China’s growing military.

The links between Huawei, one of China’s biggest tech giants, and the Chinese military have long been a long-standing concern for Washington, culminating in the Trump administration adding the company to its “entity list” of sanctioned companies in 2019.

Under Chinese President Xi Jinping, leveraging technological breakthroughs in the private sector to boost China’s defense sector has become a national priority, with the military-civilian integration strategy becoming a pillar of industrial policy.

“Chips are essential for smart weapons. This is one of the reasons why many policy makers are so concerned about the development of China’s semiconductor industry.

Although it is believed that China still lacks the technology to produce chips under 7 nanometers, companies such as SMIC and Shanghai Micro Electronics Equipment Co are racing to develop their own domestic ice-breaking devices.

“SMIC’s engineers have been leaking complaints that these machines are prone to problems,” Patel said, referring to a subtype of the DUV lithography machine.

“China is years behind in making chips with foreign tools, but decades behind with home-made tools.”

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Chinese tech giant Alibaba last year unveiled a design for a 5nm server chip intended for use in a range of Internet of Things (IoT) applications. [File: Thomas Peter/Reuters[

Chinese firms can also continue to design chips smaller than 7nm, even if they cannot necessarily produce them yet.

Last year, Alibaba unveiled one of China’s most advanced designs, the Yitian 710 — a 5nm server chip built for a range of internet-of-things (IoT) applications.

Even so, Washington’s latest restrictions are set to make the design phase for next-generation chips — those under 5nm — harder, too.

The next-gen chips are expected to rely on the emerging gate-all-around (GAA) design, which is widely considered a solution to the physical limitations of shrinking chips to infinitesimally smaller sizes.

“The ban impacts China’s pipeline today, but won’t hit their products and revenue for years to come since GAA will only be for 2nm nodes and under, which haven’t arrived yet,” said Patel, adding that 2nm nodes could make up half the output of the world’s leading chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), in the coming decades.

“It will be hard [for China] To avoid these EDA suppliers,” Patel said. “However, Cadence [a leading American EDA supplier] It has joint ventures in China, and offers its design programs at a discount in China compared to US customers. So China could have some leverage over the company there and put pressure on it.”

Yang said China would do all it could to purchase necessary lithography equipment if it was prevented from buying it on the open market.

“This could entail reverse engineering, IP theft, or strategic acquisition of foreign companies… which has happened many times in the past using other important technologies,” he said.

China is also seeking breakthroughs by pumping resources into alternative materials to silicon, such as carbon. Beijing has included research on carbon fibres, graphene, silicon carbide and other carbon-based compounds in its 14th Five-Year Plan.

“It’s a potential technology for the future, but it has not yet been demonstrated on a large scale,” Patel said. “You can make a super-fast chip in the lab at insane clock speeds, but making it on an economically viable model is another story entirely.”

“If it turns out to be the technology of the future, China is marginally closer to the front. The gap to be filled is relatively smaller.”

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