Why China’s big chip breakthrough has rattled the US

The US has mounted a global effort backed by billions of dollars and deployed intense diplomacy and intimidation tricks to block China from acquiring technology for developing super-fast computers and cutting-edge weapons.

At the center of this struggle are newer generations of semiconductors, which power everyday electronics ranging from mobile phones to electric cars and home appliances.

Despite multiple roadblocks, China’s Semiconductor Manufacturing International Corporation (SMIC) has powered ahead with the production of advanced processing chips. 

Last month, independent analysts reported that SMIC has been making 7nm (nm for nanometre) chips at its foundry since last year, a capability that’s limited to Samsung, Intel and Taiwan Semiconductor Manufacturing Company. 

“No one expected SMIC to break the 7nm barrier so quickly,” says Dylan Patel, a senior analyst at SemiAnalysis, a tech consultancy. 

“More than 70 percent of semiconductor revenue and 90 percent of chips (globally) are built on 7nm or older process technologies which China has access to,” he tells TRT World. 

Up until last year, most analysts thought SMIC was capable of producing only 14nm chips and that it would take them years to make newer generations of semiconductors. 

A nanometer denotes the size of transistors - the backbone of microprocessors. The smaller the size of a transistor, the more of them can be squeezed into a chip. Human hair has a diameter of 100,000nm. 

SMIC, the largest semiconductor foundry in China, did not officially announce the development of 7nm chips. The news came out after a research firm TechInsights reverse-engineered a bitcoin mining integrated circuit and found that it was using SMIC’s 7nm process nodes. 

Patel of SemiAnalysis was the first to write about it and explain the striking phenomenon.

“7nm is only 1 generation of chip technology behind 5nm. The most advanced smartphones use 5nm for example, but many midrange or lower end use 7nm or older,” says Patel. 

In 2020, the US imposed sanctions stopping SMIC from getting hands on equipment required to develop advanced 5nm semiconductors. 

Most notably, the US has blocked Netherland-based ASML Holding from selling its extreme ultraviolet (EUV) lithography machines to SMIC. 

“EUV Lithography tools enable the production of semiconductors below 7nm. SMIC uses DUV (deep ultraviolet) lithography for their 7nm like TSMC did with their 7nm and Intel does with their 7nm,” says Patel. 

Against the odds 

The US continues to be the hub of advanced semiconductor research and development. For instance, Washington-funded labs have done much of the academic research and experiments on EUV lithography machines. 

China’s tech companies have to a large extent relied on semiconductor imports. But as Beijing tries to move up the technology supply chain with billions of dollars in investment, the US and its allies are trying to make it difficult for companies like SMIC to acquire the necessary tools. 

US President Joe Biden recently signed the CHIPS and Science Act, allocating $54 billion in subsidies and tax cuts for the semiconductor companies which set back facilities in the US. The law imposes curbs on such companies from doing business in China. 

Beijing says the Act is discriminatory and violates international trade rules. 

Washington is also trying to form a so-called Chip 4 alliance, which will include the US, Japan, South Korea and Taiwan to collaborate on future semiconductor design and production. 

The four allies meet most of the world’s semiconductor demand. They sit on most of the capacity to design, produce and test tiny chip components. 

Taiwan’s TSMC is the largest contract chip maker, counting Apple and Nvidia as its customers. 

The US accuses China of stealing intellectual property from American and Western companies such as the technology behind turbines for windmills. 

In the last few years, successive US administrations have imposed restrictions on transfer of know-how of sophisticated products to China, which wants to move beyond its status as the world's contract manufacturer. 

What raised the alarm in Washington was China’s rapid capture of the market for 5G network. Shenzhen-based Huawei owns most of the 5G patents and faces a concerted US effort to block its expansion. 

Even though SMIC has faced similar accusations of stealing western know-how, the company, founded by Taiwanese industry veteran Richard Chang, has remained at the forefront of making integrated circuits at scale and minimum cost. 

Right after it was founded in April 2000, the Shanghai-based company introduced a policy to hire foreign talent. A year after the inauguration, it boasted 1300 employees and 400 of them were expats from the US, Taiwan, Singapore, Japan and South Korea. 

“SMIC hired hundreds of TSMC engineers by luring them with very large compensation packages. Whether they stole IP or not cannot be proven,” says Patel.