Huawei’s New Mate 60 Phones Are a Lesson in Unintended Consequences

SMIC’s development of the 7-nm chip, despite export controls, can be attributed to the company’s access to lithography machines, a critical piece of equipment that creates semiconductors by marking the surface of a silicon wafer with a circuit design. While US efforts prevented China from accessing extreme ultraviolet lithography (EUV) machines, which can produce smaller chips with ease, the ready availability of older deep ultraviolet lithography (DUV) equipment still facilitated SMIC’s production of 7-nm chips, albeit at a higher cost.

Using a DUV machine to produce a 7-nm chip requires repeatedly marking the silicon, potentially pushing the machine’s operational limits. In contrast, an EUV machine can do a simpler one-and-done operation. Progressing cheaply to 5-nm chips and beyond will require a more advanced, and strictly prohibited, EUV system. But this doesn’t mean 5-nm chips are entirely out of China’s reach. They could be made using DUV machines by 2025 or 2026, even with no changes in export restrictions. While being forced to use DUV for 5-nm chips could increase China’s lithography costs by around 60%, lithography is only around a third of the total cost of producing a 5-nm chip.

Yet the US maintains that it doesn’t have any evidence that China can manufacture 7-nm chips ‘at scale’. Washington also hasn’t confirmed or denied an investigation into Huawei, though it says that ‘every time we find credible evidence that any company has gone around our export controls, we do investigate’. Still, the US decision not to restrict older but critical pieces of lithography equipment like DUV machines produced in the Netherlands and elsewhere from being shipped to China was a massive loophole that China took full advantage of.

Ironically, sanctions meant to halt China’s tech progress have instead fueled innovation. But their repeal wouldn’t mean Chinese companies would return to buying chips from American manufacturers. The damage has been done. Relaxing export controls now would just accelerate Chinese innovation. Despite the initial misstep, tighter, better enforced restrictions are now needed to slow China’s progress, particularly if they can force the Chinese chip industry into the arduous process of entirely restructuring its incredibly complex lithography and semiconductor supply chain.

SMIC’s breakthrough shows that the US needs to continue tightening export controls on semiconductor technology. While it has recently expanded its restrictions to include the Dutch DUV equipment used to make the 7-nm chips, due to conflicting export rules these machines could still make their way into China if approved by the Dutch government. And, at this point, no change to export restrictions can extinguish China’s desire to establish a homegrown semiconductor industry in the long term, nor would it be in the Biden administration’s best interests politically to suddenly soften its stance.

Loopholes in the restrictions and their lax enforcement prevented them from stifling China’s progress. SMIC’s access to DUV equipment from the West and its use of pre-existing chip designs to produce the Kirin 9000S show that there were too many ways to wriggle outside the scope of restrictions. The US shouldn’t expect China to be any less creative in finding gaps in tighter regulations either.

To slow China down, the US needs to review its export controls and close further loopholes, or they will remain ripe for exploitation by Chinese firms.

Samara Paradine is a coordinator with ASPI’s Professional Development Centre. This article is published courtesy of the Australian Strategic Policy Institute (ASPI).