China is seething with anger that measures taken by the U.S. administration to cut off access to China to the technology that makes the advanced computer chips threatens to stifle its technological ambitions of Beijing. Leaders in China are struggling in vain to figure out how to retaliate.
Beijing has realized that chips that are used in practically everything – from phones to kitchen appliances to fighter jets — are crucial assets in the strategic rivalry that it has initiated with Washington. A Chinese scientist wrote in an official journal in February 2023 that chips were at the centre of the “technology war,” according to a report from Beijing.
Unfortunately for Beijing, however, the chip foundries in China produce only low-end processors used in autos and appliances. Beginning with the Donald Trump administration, the U.S. government has been cutting off its access to a growing array of tools to make chips for computer servers, artificial intelligence and other advanced applications. Japan and the Netherlands have joined the USA in limiting the access to Beijing to technology that may be used to make weapons. The Joe Biden administration has tightened these restrictions further with a series of legislations. The previous Barack Obama administration had only stopped the access of China to chip technology that had advanced military uses.
Beijing has no way to retaliate against U.S. companies either. Chinese industries import more than $300 billion worth of foreign chips every year to assemble smart phones, tablet computers and other consumer electronics.
The situation of China is so grim that it has been blocked from buying a machine available only from a Dutch company — ASML — that uses ultraviolet light to etch circuits into silicon chips on a scale measured in nanometres; the billionth part of a metre. It takes about 1,500 steps and technologies to make microprocessor chips. These technologies are owned by suppliers in the U.S. Europe and Japan.
According to an Observer Research Foundation study, the USA is on the top in its technological war with China. The USA will strive to maintain its dominance, as evident by some of the most restrictive export control measures yet on China. The ability of the USA to persuade its partners such as the Netherlands and Japan to adopt similar measures would be of critical advantage to Washington as China would find it difficult to gain access to advanced semiconductor technology.
As the Time magazine has pointed out, the key advantage of America in this technology war is that it is not alone. “America’s greatest competitive advantage over China is not wealth and weapons but the fact that America has a lot of close friends, while China has none,” comments the prestigious magazine. The only country that has signed a treaty to support China in the event of a war is North Korea, “an impoverished pariah state.”
Many of the friends of America, on the other hand, are world leaders in technology of major strategic or geopolitical importance such as semiconductors. Taiwan produces more than 90 percent of the most advanced semiconductor computer chips of the world and ASML of Netherlands produces 100 percent of the most advanced lithography machines that are essential for computer chip factories.
The USA has lately enforced a number of federal regulations aimed at restricting the flow of technologies. These include the Arms Export Control of the State Department which enforces the Arms Export Control Act and the Export Administration Regulations of the Department of Commerce. In October 2022, the Bureau of Industry and Security initiated critical policy changes, introducing “additional export control on certain advanced computing semiconductor chips.”
The new U.S. export controls announced in the first week of October 2022 make it difficult for China to obtain critical technologies, prohibiting the transfer or sale of semiconductors made with U.S. technology without an export licence. These restrictions, according to the ORF study, are likely to have a significant impact on research in China in areas like artificial intelligence, high-performance computing and supercomputers. The new rules also restrict the export to China of chip-making tools and technology which Chinese companies require to produce their own equipment.
The USA has also put limitations on U.S. citizens and entities engaging with Chinese chip makers without first obtaining a specific approval which, it goes without saying, will not be easily forthcoming. The new restrictions are fairly extensive and could impose severe economic and technological pain on Beijing for years to come.
U. S. Under Secretary of Commerce for Industry and Security Alan Estevez has explained the reasons for imposing such pains on Beijing. It is the growing military ambitions of China in recent years and the quest of Beijing to dominate the world. “We are appropriately doing everything in our power to protect our national security and prevent sensitive technologies with military applications from being acquired by the military, intelligence and security services in China,”he has said. U.S. Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler has pointed out that China is trying to develop capabilities in supercomputers and artificial intelligence “to monitor, track and keep under surveillance its own citizens and fuel its military modernization.”
The wave of U. S. sanctions began in 2019 as a small effort by the Donald Trump administration to limit the access of Chinese telecommunication giant Huawei in multiple regions across the globe. The Chinese company has been accused of spying, though it denies the charge. In recent months, the USA has also said that it will take “extraterritorial measures” if its allies and partners do not follow the lead of America in the imposition of the new measures.
The huge growth in demand for chips, especially the growing need for digital connectivity in the wake of the pandemic, has led to a critical shortage in the semiconductor industry globally.
In this situation, countries that have semiconductor production capacities are better placed to dominate the global market. The U.S. and its partner countries are way ahead in this regard. China has made a big investment in the semiconductor industry but it will take a long time for it to reap the advantages of this investment. Practice Vice President for Semiconductors and Electronics at Gartner Richard Gordon has said that China will spend money in the future to have a semiconductor industry to service its own internal consumption, “but the bigger issue is that it requires expertise and time, and it will take a very long time.” Besides, China has no way but to rethink this policy approach as, without the access to components produced in the Western countries, China cannot manufacture high end chips.
Experts have pointed out that the new export controls are the beginning of a new U.S. policy of actively choking large segments of the technology industry in China. The Joe Biden administration in the USA is effectively trying to restrict the artificial intelligence industry in China by blocking access to high-end artificial intelligence chips, stopping China from designing artificial intelligence chips domestically by preventing it from accessing the U.S.-made chip designing software, preventing China from manufacturing advanced chips by blocking access to semiconductor manufacturing equipment built by the USA and preventing China from domestically producing semiconductor manufacturing equipment by choking off access to components built by the USA.
The Joe Biden administration is also trying to ensure that the Chinese military cannot indirectly gain access to high end critical technologies from the USA and its partner countries through the fusion between the civil and the military in China. The limitation of the approach of the Barack Obama administration of placing restrictions only on the Chinese military gaining access to high-end chips and leaving room for Chinese commercial players to enjoy access to U.S. technologies was that it had helped the Chinese military evade export controls through indirect sales to shell companies. To prevent this possibility, the Joe Biden administration has cut off all sales to China.
For cutting-edge computer chips that go into smart phones, supercomputers and artificial intelligence systems, Beijing will have to rely on the U.S. and its partner countries like Japan and the Netherlands. On the ground that the Chinese state, as well as the private sector, threatens human rights and international security, Japan and the Netherlands too have joined the USA in restricting exports to China, making it even more difficult for Beijing to pursue some of the advanced systems that use these chips. At the end of January 2023, the three countries, the USA, the Netherlands and Japan, where advanced machines to print microchips are manufactured, reached an agreement to introduce new export restrictions on advanced chip technology to China. The deal, however, was made public in early March, 2023. China, according to experts, does not have “the decades, if not centuries” of experience and tacit knowledge to replicate machines necessary for developing these chips.