Has the US failed to block China’s microchip advance?

Last week, the United States blocked the export of advanced chip-making equipment to China as part of its campaign to stop Beijing from producing cutting-edge microchips.

The equipment in question were DUV lithography machines, which Netherlands-based ASML makes for semiconductor fabs such as Taiwan’s TSMC and Shanghai-based Semiconductor Manufacturing International Corporation (SMIC).

The US has been pressuring allies including Japan and the Netherlands to drastically reduce supply of equipment and raw materials, that China needs to produce advanced computer chips.

ASML was already scheduled to stop shipments of DUV equipment - specifically the 1980Di and 1980Fi models - to Chinese buyers from January. But the US pressured Amsterdam to act days before the deadline. This hinted at the seriousness of the officials in President Joe Biden’s administration to take on China.

But leading industry experts and the US government's own assessment say the measures are falling short.

“The Biden administration is starting to enforce export controls better, but there are still major gaps in that new foundries can spin off and receive 1980Di and 1980Fi from ASML,” says Dylan Patel of Semianalysis, who was among the first to report on China’s 7nm breakthrough.

“Established firms like CXMT who have openly flaunted sanctions violations continue to receive shipments of ASML tools as well. Lastly, SMIC can receive shipments of ASML's tools at every site they operate except Shanghai.”

CXMT or ChangZin Memory Technologies, which makes DRAM memory chips, and SMIC, are among Chinese companies at the forefront of building in-house capability to produce advanced chips.

The limits of US export control

Since 2018,the US has relied on its financial and economic clout on the global trade and banking system to block sale of equipment, chemicals and software to Chinese firms. Washington accuses them of working closely with China’s People’s Liberation Army (PLA).

But despite these measures, the Chinese firms have managed to keep up with Moore's Law.

In 2022, Dylan Patel and his colleagues at SemiAnalysis found SMIC’s 7nm chips in a bitcoin mining integrated circuit. That revelation shocked the tech world.

Washington is banking on its leverage over the global semiconductor supply chain to stop China from acquiring the capability of making chips at nodes of 14 nanometers (nm) or beyond.

A nanometer is the size of a transistor, the building blocks of chips -- the smaller the size, the more transistors can be piled on to a chip, making them more efficient and cost-effective.

Only a handful of chip makers like Samsung, Intel and TSMC had the capability to make advanced chips.

At the time, some analysts argued that SMIC’s 7nm chips weren’t good enough and they wouldn't ever find their way into electronic goods.

On October 7, 2022, the Biden administration ramped up pressure on China. It widened the scope of export controls to target the whole semiconductor sector instead of individual end users.

But last year, the world found out that Huawei’s new Mate 60 Pro smartphone was using SMIC’s 7nm chips.

The US has steadily added names of Chinese individuals and companies to its Entity List. Working with anyone on the Entity List can draw US sanctions. There are more than 610 China-based entries on the list, most of them added in the past 5 years.

Still, Chinese firms have found ways to avoid the sanctions and trade blockades. For instance, when iFlytek, a Chinese voice recognition company, was barred from acquiring advanced NVIDIA chips, it began using cloud service based chips to train its voice recognition AI model.

The US government acknowledges that it has failed to completely stop Chinese firms from acquiring semiconductor tools and equipment.

In its latest report, the US-China Economic and Security Review Commission, admitted that it remains difficult to keep track of all of the equipment and raw material going to Chinese firms.

The same chemicals and tools that are used in 7nm and 28nm processes, make it difficult for exporters to abide by US controls.

The ASML dilemma

ASML, the world’s largest producer of EUV and DUV lithography equipment, which prints intricate integrated circuits on silicon wafers, is at the center of the US curbs on China.

The US has forced the Dutch firm to stop the sale of EUV (Extreme Ultraviolet) lithography machines to China. EUV equipment is essential to making 5nm and 3nm chips, which power the latest iPhones.

But, less-advanced but still very powerful DUV machines are still finding their way to China, analysts say.

“No, they (ASML) did not stop shipment of DUV machines to China. They stopped a few shipments to a few customers because the Dutch government recognised it was bad for national security,” says Patel.

In the last few months of 2023, Chinese companies spent billions of dollars to import DUV machines and other tools used in semiconductor processes in anticipation of further tightening of US export controls.

“SMIC did stock up significantly, but they still need many more tools to catch up with other foundries like TSMC,” says Patel.

Perhaps more importantly, SMIC has found a way to produce 7nm chips using DUV machines by applying a method known as double-patterning.

“China is investing more than ever into their domestic chip industry. They continue to work towards the "Made In China" goal,” says Patel.