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Charts: China Buys Fewer Chip-Making Machines as US Restrictions Start

Source : Bloomberg

New Japanese Chipmaker Rapidus Joins Development and Investment Race

Yuki Yamaguchi wrote . . . . . . . . .

New Japanese chip production company Rapidus is facing daunting challenges as it tries to catch up with Asian rivals in the technology development and investment race, leaving a shaky outlook for the country as it attempts to revive its once-thriving industry.

Created by Toyota Motor, Sony Group and six other major Japanese companies with a total investment of ¥7.3 billion ($52 million), the next-generation semiconductor venture plans to mass-produce chips with state-of-the-art 2-nanometer technology in Japan in 2027. Such advanced chips can be used for 5G communications, quantum computing, data centers, self-driving vehicles and digital smart cities.

SoftBank and NTT are also among the participants in the project, along with Kioxia, Denso, NEC and MUFG Bank.

The Ministry of Economy, Trade and Industry will provide ¥70 billion in subsidies as part of its semiconductor strategy compiled last year.

The government sees domestic chip production as critical to its economic security, as dependence on major supplier Taiwan poses geopolitical risks amid rising tensions between the United States and China over the self-ruled island. A potential crisis in the region could lead to Japan losing access to semiconductor supplies.

Rapidus focuses on foundry operations representing a group of private-sector entities, while the government-backed Leading-edge Semiconductor Technology Center will serve as a research and development hub in cooperation with the United States.

This latest effort follows the country’s failure to keep up in the investment race over the miniaturization of semiconductors that resulted in a yearslong development hiatus in the 2010s.

Taiwan Semiconductor Manufacturing, a world leader in chipmaking, plans to mass-produce 2-nanometer chips in 2025, while Samsung Electronics succeeded in mass production of 3-nanometer semiconductors in June. In contrast, the latest technology in Japan can only produce 40-nanometer chips.

Analysts are skeptical about the immediate success of the new company amid stiff global competition. The state financial support of ¥70 billion, compared with the much larger assistance of $52.7 billion set out by the U.S. government, raises questions about how committed the Japanese government is to reviving the chip industry. The European Union and the private sector will also offer assistance of €43 billion ($45 billion).

Hideki Yasuda, a senior analyst at Toyo Securities, said the ¥70 billion is “not enough at all” for the new company to be competitive in the global market.

“Around ¥1 trillion of annual investment is necessary for the chip industry,” Yasuda said. “It’s hard to force private companies to bear such a cost. So the question is whether the Japanese government is prepared to do that.”

Rapidus Chairman Tetsuro Higashi said at a news conference last Friday he believes the industry ministry is aware that long-term financial support is necessary and hopes more support will be provided to help his company build a chip plant.

The government’s financial aid should at least match the amounts offered by other countries for Japanese companies to stay competitive, Mitsuhiro Osawa, senior analyst at Ichiyoshi Research Institute, said.

Japanese chip manufacturers were once dominant players, taking half the global share in the late 1980s. But they came under pressure when frictions over trade with the United States led to export restrictions that allowed South Korean and Taiwanese chipmakers to make deeper inroads.

Spending by Asian rivals outpaced that of flagging Japanese companies in an industry where the development and mass production of cutting-edge products determines competitive advantage.

Japan has striven to rejuvenate its semiconductor sector through government initiatives over the past decades. In 2006, Toshiba, Hitachi and Renesas Technology set up a planning company for a government-backed joint foundry, but the project fell apart six months later.

Elpida Memory, established through the merger of chip operations at Hitachi, NEC and Mitsubishi Electric, filed for bankruptcy protection in 2012 despite government aid of ¥30 billion.

Rapidus President Atsuyoshi Koike, a former engineer in Hitachi’s chip division and former president at the Japan unit of Western Digital, says he has learned lessons from the past.

“In the past, Japan tried to seek solutions only in a closed world,” Koike told reporters last Friday. “We will collaborate with people and companies worldwide, including raw material companies and chipmaking equipment makers.”

Rapidus is looking for more partners, including from overseas. The company, for example, is in talks with IBM over technology cooperation on 2-nanometer chips.

The technological vacuum of the past decade has allowed talented personnel to be recruited by rivals out of the country. Rapidus may find it difficult to look for skilled engineers and plant workers anytime soon in Japan, Masahiko Ishino, chief analyst at Tokai Tokyo Research Institute, said.

Japanese companies trying to catch up with global competitors are “like a high school student, who did not study at all in school, trying to get into the University of Tokyo,” Ichiyoshi Research’s Osawa said, referring to the most prestigious institution of higher education in Japan.

“The bar is extremely high” for Rapidus, which has no prior experience in mass-producing state-of-the-art semiconductors, to make 2-nanometer chips, Toyo Securities’ Yasuda said.

Source : Japan Times

Read more at 経済産業省

次世代半導体の設計・製造基盤確立に向けて . . . . .

Chart: U.S. Dominates Early Chip Supply Chain

Source : Wall Street Journal

Chart: U.S. Lags in Chip Manufacturing

Source : FT

Chart: China is U.S. Chip Equipment Firms’ Largest Market

Source : Caixin

Chart: Worldwide Semiconductor Revenues and YoY % Change

The Sweeping Impact of New U.S. Semiconductor Restrictions

From Caixin . . . . . . . . .

The Biden administration landed its heaviest blows yet in this month’s escalation of the U.S. war on China’s semiconductor ambitions. The sweeping new restrictions unveiled Oct. 7 affect not only the sale of advanced integrated circuits, sophisticated chipmaking equipment, and supercomputer parts but also China’s ability to hire top talent.

In the short term, the restrictions will limit Chinese chipmakers’ ability to make certain types of electronic devices that are at the heart of modern products ranging from household appliances to mobile phones, smart electric vehicles, and advanced military weapons. In the long term, the policies may spur China to try to accelerate its self-sufficiency drive in semiconductors and the equipment to produce them, industry experts say.

The new American policies have also roiled the global semiconductor industry. They amount to a “double-edged sword” as American companies will also suffer heavy losses, according to ICwise chief analyst Gu Wenjun. China is the largest market for the three biggest U.S. semiconductor equipment suppliers, accounting for 33% of Applied Materials Inc.’s revenue, 35% of Lam Research Corp.’s, and 26% of KLA Corp.’s, according to ICwise.

Washington has been ratcheting up export controls and investment barriers targeting China’s semiconductor sector for at least three years. Authorities telegraphed the most recent move months ago. An American chip industry executive warned of an expansion of export restrictions as early as July. Lam Research, a California-based supplier of silicon wafer fabrication gear, received notice from authorities to bar shipments to China of advanced chip-making machinery, the company’s chief executive Tim Archer said July 27.

In September, Nvidia Corp. and Advanced Micro Devices Inc. were barred from exporting to China their highly sought processing units that use the latest generation of chip technology.

Surprise personnel rules

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) now requires Americans participating in advanced chip production in China to apply for permits to do so. The new rules put such people working in China under the same stringent regulations as those participating in nuclear, biological, and missile proliferation activities outside the U.S., said Dai Menghao, compliance counsel at Hong Kong-based law firm King & Wood Mallesons.

As much as Chinese companies anticipated expanded export controls, the restrictions on talent caught the industry by surprise. Years of global integration resulted in an open market for semiconductor talent. Many scientists and engineers with U.S. citizenship or permanent residency work in the Chinese industry. Now they face what one semiconductor investor called an “inhuman” choice—either giving up their U.S. citizenship or quitting their jobs.

Since last week news has been circulating that many Americans working for Chinese chipmakers are leaving the country. Cutting off access to such talent will surely hurt the foundations of the industry, insiders said.

Many Chinese Americans with U.S. citizenship hold key technical positions at Chinese chip companies, an executive at a chip design enterprise told Caixin. Some key technical experts at ChangXin, Advanced Micro-Fabrication Equipment Inc., and Semiconductor Manufacturing International Corp. (SMIC) may have to leave, the executive said.

The Chinese government should provide more policy support to overseas returnees in the chip industry, the chip design executive said. “They have a strong will to stay in China to start their own businesses, so China should try to keep them,” the executive said.

American tech watchdog

Under the new rules, any chip that exceeds benchmarks set by the BIS, the American government’s tech watchdog, will be subject to export controls, regardless of use or industry, several lawyers familiar with U.S. export controls told Caixin. The new rules cover all kinds of computing chips, including graphics processing units, memory chips, and other traditional or new computing architecture chips. In terms of end use, the new restrictions mainly affect data center chips. The computing power of chips for mobile phones and self-driving vehicles has not exceed the BIS benchmarks.

The ban will limit China’s development and maintenance of supercomputers. Future supercomputers in China may not be able to obtain chips made using American technology from anywhere in the world, a source at the U.S. Semiconductor Industry Association told Caixin.

The BIS also expanded a national security-related control known as the Foreign Direct Product Rule to cover 28 Chinese enterprises. Previously it applied the rule in sanctions against Huawei Technologies Co. to target a broader range of exports, including non-U.S.-origin items that are the direct products of specified U.S.-origin software and technology. The move practically banned Taiwan Semiconductor Manufacturing Co. from producing chips designed by Huawei’s HiSilicon unit, crippling Huawei’s 5G smartphone business.

The U.S. also added more Chinese businesses to a list of companies that it regards as “unverified,” meaning American suppliers will face new hurdles in selling products to those entities. The list names companies that the BIS could not verify because an end-user check could not be completed to a satisfactory level. If a persistent lack of cooperation from local governments effectively prevents the BIS from identifying compliance, companies on the unverified list may be moved to the entity list and subjected to more stringent export limits.

This poses a dilemma for Chinese companies, said semiconductor industry market research institute ICwise director Wang Xiaolong. If they refuse to be investigated, businesses might be added to the entity list, but if they accept investigation, they could risk exposure of key information.

U.S. businesses affected

Even Chinese companies not subject to U.S. export controls need to consider more domestic or non-American equipment supplies to reduce future sanction risks, a state-owned fund investor told Caixin.

China has long been Nvidia’s second-largest market. China accounted for 26.42% of the graphic chipmaker’s 2022 sales. Restricted exports to China of two of Nvidia’s top computing chips for artificial intelligence could affect $400 million of potential sales in the current quarter, the company said.

The Semiconductor Industry Association (SIA), which represents 99% of the U.S. semiconductor industry, said it is assessing the impact of the new export controls and is working with member companies and the U.S. government to ensure compliance. The group urged the U.S. government to implement the rules in a “targeted way” to help mitigate harm to American innovation.

Research conducted by SIA and Boston Consulting Group in 2020 estimated that U.S. companies could lose 37% of their revenue if the U.S. completely banned semiconductor companies from selling to Chinese customers, effectively causing a technology decoupling from China.

Targeting advanced chips

The BIS specified items subject to export controls including logic chips with architectures of 16 to 14 nanometers (nm) or less, DRAM memory chips of 18 nm or less, and NAND flash memory chips with 128 layers or more. In integrated circuit manufacturing, smaller nanometer ratings mean more-advanced technology.

All of the thresholds represent the most advanced technology in mass production by Chinese chipmakers. SMIC, ChangXin, and Yangtze Memory Technologies Co. Ltd., China’s three largest chipmakers, will be hit the hardest as they may get stuck at their current technology level and struggle to move toward more advanced chips, a state-owned semiconductor investor said.

In the logic chip segment, SMIC, the largest contract chip maker in the Chinese mainland, is mass-producing 14 nm chips and is developing 10 nm and 7 nm technologies. In the NAND chip segment, Yangtze Memory started mass production of NAND flash memory chips with 128 layers in 2021. It released a product with 128 layers but has not yet started mass production. In the DRAM segment, ChangXin is specialized in the production of DRAM memory. As of 2020, ChangXin can manufacture using a 19 nm process and is developing 17 nm technologies.

Starting Oct. 10, LAM suspended supplies of components and equipment to its Chinese clients, a state-owned semiconductor investor said. LAM’s engineers at the clients all left the country, an investor close to the matter confirmed with Caixin.

The withdrawal of U.S. equipment suppliers and their personnel means Chinese fabrication plants may not be able to get support from equipment manufacturers if something goes wrong or the machinery needs maintenance. Although Chinese companies can also provide basic maintenance services, some equipment needs to be replaced in a couple of years. If the quality and cost of replacement cannot be guaranteed, it will inevitably affect existing production lines, a memory chip industry participant said.

Without new supplies of equipment, Chinese chipmakers are also unable to expand their production lines and are stuck with existing capacity.

ChangXin’s 12-inch wafer production line in Hefei began production in September 2019 with a design capacity of 120,000 wafers a month. According to an original plan, ChangXin was to build two more 12-inch wafer production lines. The phase 2 project is still under construction. Yangtze Memory planned to massively expand its 128-layer NAND production line and start trial production of a 232-layer product. Now that plan will be difficult to carry out, several industry participants told Caixin.

“The reality is that domestic equipment is not enough to support a similar production line now,” a person close to local government policymakers in the semiconductor industry told Caixin. Since the U.S. imposed sanctions on Huawei, Yangtze Memory, and SMIC have been actively promoting the certification of domestic equipment, with ChangXin relatively slower, the person said. “Now, all three companies face the same problem: Some equipment is exclusively supplied by the U.S. firms, without which their production lines cannot operate,” the person said.

Making do with old technology

Experts widely say they expect that an expanded U.S. blockade on high-end chip exports to China will only accelerate China’s breakthroughs in core technology.

For now, as the U.S. restrictions don’t affect less-advanced devices. Chinese companies are expected to allocate more resources to the mature products. Since U.S. restrictions in 2020 barred SMIC from using U.S. technology and equipment to produce 10 nm or smaller chips, the company increased its 28 nm capacity. ChangXin and Yangtze Memory may also switch their growth path to increase capacity using the mature processes, industry participants said.

Globally, demand for chips with mature process nodes is still large, but China accounts for less than 20% of the market. Chinese companies can optimize and expand the mature processes, gradually lower costs, and come up with more cost-effective products to compete with Western rivals, the state-owned semiconductor investor said.

However, the level of domestic equipment is uneven, and some key components still rely on imports. A source at a foundry told Caixin that most equipment used to make 28 nm and smaller nodes are still dominated by U.S. and Japanese companies.

Several people in the semiconductor industry suggested that the government should increase support for domestic substitution, including backing the construction of fabs, encouraging fabs to use domestic equipment, and opening more markets to use domestic chips.

Source : Sixth Tone

U.S. Chip Sanctions ‘Kneecap’ China’s Tech Industry

Will Knight wrote . . . . . . . . .

LAST MONTH, THE Chinese ecommerce giant Alibaba revealed a powerful new cloud computing system designed for artificial intelligence projects. It is used by Alibaba’s cloud customers to train algorithms for tasks like chatbot dialogue and video analysis, and was built using hundreds of chips from US companies Intel and Nvidia.

Last week, the US announced new export restrictions that will make future projects like that unlikely. The Biden administration’s rules forbid companies from exporting advanced chips needed to train or run the most powerful AI algorithms to China.

The sweeping new controls are designed to keep the country’s AI industry stuck in the dark ages while the US and other Western countries advance. The restrictions also block the export of chipmaking equipment and design software, and ban the world’s leading silicon fabs, including Taiwan’s TSMC and South Korea’s Samsung, from manufacturing advanced chips for Chinese companies.

“The United States is saying to China, ‘AI technology is the future; we and our allies are going there—and you can’t come,’” says Gregory Allen, director of the AI governance project at the Center for Strategic & International Studies (CSIS), a think tank in Washington, DC.

Chris Miller, a professor at Tufts University and author of the recent book Chip War: The Fight for the World’s Most Critical Technology, says the new export blockade is unlike anything seen since the Cold War. “The logic is throwing sand in the gears,” Miller says.

The US action takes advantage of a decade-long boom in artificial intelligence in which new breakthroughs have become coupled to advances in computing power. Pioneering new projects often involve machine learning algorithms trained on supercomputers with hundreds or thousands of graphics processing units (GPUs), chips originally designed for gaming but also ideal for running the necessary mathematical operations. That leaves China’s AI ambitions heavily dependent on US silicon.

Baidu, the leading Chinese web search provider and a key player in cloud AI services and autonomous driving, also uses Nvidia chips extensively in its data centers. Last October the company announced one of the world’s largest AI models for generating language, built using Nvidia hardware.

ByteDance, the Chinese company behind TikTok and its counterpart in China, Douyin, relies on Nvidia hardware to train its recommendation algorithms, according to its own software documentation. Several Chinese companies, including Alibaba and Baidu, are developing silicon chips designed to compete with those from Nvidia and AMD, but these all require manufacturing from outside China that is now off-limits. Alibaba and Baidu both declined to comment on the new rules. WIRED did not receive responses to requests for comment made to ByteDance and several other Chinese chip firms.

Big Tech companies in China—as in the US—have made large AI models increasingly central to applications including web search, product recommendation, translating and parsing language, image and video recognition, and autonomous driving. The same AI advances are expected to transform military technology in the years to come, and shape how the US and China butt heads over issues like Russia’s invasion of Ukraine and Taiwan’s claims to independence.

“The Biden administration believes that the hype around the transformative potential of AI in military applications is real,” says Allen of CSIS. “The United States also has a pretty good understanding of which computer chips are going into Chinese military AI systems, and they are American, which is viewed as unacceptable.”

The new export restrictions contribute to the steady decline in US-China relations in recent years, despite decades of technological codependence during which Chinese manufacturing has become the bedrock of the US tech industry. In recent years, the US government has sought to take a more active role in boosting its domestic AI industry and chip production due to an increased sense of competition with China.

Shares in several Chinese tech firms, as well as Nvidia and AMD, fell this week as the scope of the restrictions sank in with investors. The Department of Commerce had warned Nvidia and AMD last month that they would have to halt exports of advanced AI chips to China, but the rules announced last week are far broader. The new export rules add to a bruising 18 months for China’s tech firms, after a broad government crackdown aimed at regulating the industry more tightly after years of freewheeling growth.

Being cut off from US chips could significantly slow Chinese AI projects. China’s leading domestic chipmaker, Semiconductor Manufacturing International Corporation (SMIC), produces chips that lag several generations behind those of TSMC, Samsung, and Intel.

SMIC is currently manufacturing chips in what the industry calls the 14-nanometer generation of chip making processes, a reference to how densely components can be packed onto a chip. TSMC and Samsung, meanwhile, have moved to more advanced 5-nanometer and 3-nanometer processes. SMIC recently claimed that it can produce 7-nanometer chips, albeit at low volume.

The capacity of any Chinese company to keep pace with advances in chip manufacturing is limited by its lack of access to the extreme ultraviolet lithography machines needed to make chips with components smaller than those of the 7-nanometer generation. The sole manufacturer, ASML in the Netherlands, has blocked exports to China at the request of the US government.

David Kanter, president at chip analysts Real World Insights, says that one from the 5-nanometer generation of semiconductor technology is roughly three times faster or more efficient than a 14-nanometer one because of a greater density of transistors and other design improvements.

The move will not cut China’s AI industry off overnight, however. A person at a Chinese venture capital fund that specializes in AI, who spoke anonymously because of the sensitive nature of the topic, says that some Chinese companies have been stockpiling GPU components since parts of the rule change were disclosed in September. It may also be possible for companies to train AI models outside of China using equipment installed elsewhere.

The CEO of a Chinese AI startup, who also spoke on condition of anonymity, said the new restrictions would slow down AI advances at Chinese companies in the long run, but predicted that they could keep up with the US in the short term by running older hardware for longer, making AI models that can do more with the same computing power, or gathering more data. “If the target is to achieve certain accuracy, the amount of data can be more helpful than computational power,” the CEO says. “For most AI tasks, training AI models does not always need huge power.”

The most important question now is how the rules are enforced, says Douglas Fuller, an associate professor at Copenhagen Business School who studies China’s tech industry. “In the short term, I think this will do what it intends to do—kneecap the high performance computing efforts of China,” he says. But Fuller says China will look to other countries that have chipmaking expertise and may try to smuggle components in.

Source : WIRED

China’s Semiconductor Breakthrough

Che-Jen Wang wrote . . . . . . . . .

Semiconductor Manufacturing International Corporation (SMIC), the largest chipmaker in China, has reportedly achieved a major breakthrough. TechInsight, a Canadian tech media outlet, revealed that SMIC had advanced its technology to a quasi-7-nanometer (nm) process, which might be a stepping stone for a true 7nm process. According to TechInsight, SMIC products made from the quasi-7nm process had been shipped for a year. Some media argued that the SMIC’s advancement showed that the U.S. blockade was too little, too late, and out of date.

SMIC’s most advanced chip process node successfully made in the past was 14nm, although it has always made strong attempts to move toward an advanced process node (below 10nm). However, due to SMIC’s inclusion on the Entity List by the U.S. Bureau of Industry and Security in December 2020, which was designed to limit SMIC’s ability to reach advanced technology nodes of 10 nanometers or below, it has been blocked from obtaining the necessary Extreme Ultraviolet Lithography (EUV) machines from ASML of the Netherlands.

The use of an EUV machine is not necessary, in theory, to make the advanced process nodes. Taiwan Semiconductor Manufacturing Company (TSMC), the global leader in semiconductor manufacturing, used Deep Ultraviolet Lithography (DUV) machines in the early stage of its 7nm volume production. But using DUV machines requires more layers of masks, which means more times of exposure and more complexity. This will lead to a lower yield rate and a higher cost for each chip, making such a process commercially inviable nowadays.

But the semiconductor industry is of a strategic importance for China. Having the capacity to make advanced chips is more important than the prices of these chips. It appears that SMIC is indeed moving ahead to use this older technology to achieve technological breakthroughs. In October 2020, it was reported that SMIC had successfully developed “quasi-7nm” chips with the FinFET N+1 process using DUV machines.

TSMC’s chairman, Dr. Mark Liu, said that the 7nm process was a full node stride and a watershed in semiconductor manufacturing. The biggest difference between the 7nm and 14nm processes is that the number of transistors per unit area of the 7nm process increases greatly, and its energy consumption is reduced substantially. These makes 7nm chips far more powerful than 14nm one, yet also more economical. For example, in 2020, the cost of a 7nm chip was $233, which was not only lower than the $331 cost of a 16nm chip, but also lower than the $238 cost of a 5nm chip. In addition, the performance of NVIDIA’s A100 Tensor Core data-center processor, which uses TSMC’s 7nm process, increased by 20 times, so that the data center, which originally required 25 racks, can be reduced to a single rack.

In other words, 7nm chips not only lower the cost of ownership, but also deliver high computing performance, which makes AI, cloud computing, and 5G economically viable both in business and military applications.

China’s Semiconductor Industry Sprints to Improve Self-Sufficiency

There is a big gap between chip consumption and chip manufacturing in China, meaning its chip self-sufficiency rate is low. In 2021, the size of China’s semiconductor market was about $186.5 billion, of which only $31.2 billion worth of chips were manufactured in China, both by foreign and domestic companies – a self-sufficiency rate of 16.7 percent. Furthermore, only $12.3 billion worth of chips were manufactured by China-headquartered companies, accounting for merely 6.6 percent of domestic consumption.

To reach the goal outlined by the “Made in China 2025” initiative, a self-sufficiency rate of 75 percent needs to be achieved by 2030. Under such pressure, it is not difficult to understand why China has subsidized semiconductor companies to build factories through various policy incentives. While there are notorious “unfinished fabs” cases in the development of the semiconductor industry, the failure has not caused China to retreat from its policy to fully support semiconductor factories.

The experience of developing the electronics industry in the past has made Chinese policy planners understand that, even though China’s semiconductor industry lags behind foreign manufacturers in terms of its production scale and technology, there are two effects that will urge China to support a large number of semiconductor companies through policies. First, a large number of Chinese manufacturers can “eat up” the market and compress the space for second- and third-tier wafer foundries. According to one report, by the end of 2024, China will be leading the world by building new 31 chip factories, surpassing 19 in Taiwan and 12 in the United States. Since most of the 31 new factories in China will be making mature processes nodes, there is little impact on the leading manufacturers, such as TSMC, Intel, and Samsung, all of which use advanced processes. However, China’s “fab sea” tactic may exert huge pressure on other mature process manufacturers.

Given that excess inventory has emerged in some areas of the electronics industry, and the market expects that there will be excess production capacity in chip manufacturing after 2023, price competition is inevitable. Foundries using mature processes will not be able to compete with Chinese semiconductor factories that enjoy major policy subsidies. Some second- and third-tier foundries may have to withdraw from the market, which will allow Chinese foundries to dominate the mature process market.

Second, if one or two Chinese companies can stand out among the large number of policy-supported foundries, there is a hope that this “national champion” can compete or even dominate the advanced process market. Lenovo in the PC/laptop sector and Huawei and ZTE in communications were all developed using such a model. And SMIC may be the leading Chinese company that can compete in the international advanced semiconductor arena and break technology strangleholds set by the United States. The 7nm advancement discovered by TechInsight is the best proof.

In the past, Chinese chip design companies were sanctioned by the United States and could not use TSMC’s advanced process to launch new products. If SMIC can extend the 7nm process to be used on other Chinese manufacturers’ products, it will allow China to accelerate its advancement in AI, high-speed computing, and 5G etc. The acceleration will enable China to achieve its goal of moving from a “manufacturing giant” to a “world manufacturing power.”

The Effectiveness of Entity List Needs to be Reassessed

We currently know very little about SMIC’s 7nm shipments, yield rates, and prices; it is not even clear whether there are other applications. However, the advancement of the 7nm process is expected to allow China to make breakthroughs in artificial intelligence and high-speed computing. In turn, that will also increase China’s economic and military threats to not only Taiwan, but all of East Asia.

China has set goals to achieve “complete modernization” based on “informatization,” “intelligence,” and “mechanization” by the People’s Liberation Army’s 100th anniversary in 2027. Breakthroughs in AI, quantum computing, and hypersonics all require the assistance of advanced chips. Only blocking China from acquiring EUV machines will not prevent China from advancing in advanced process chips, which will eventually help its military buildup. More efforts are needed.

The United States is now trying to exert diplomatic pressure on Japan and the Netherlands to extend the current EUV embargo to include DUV machines. Some may argue that isolating China will only accelerate its march to self-sufficiency. From the past history of China’s industrialization, China’s ambition will not stop until the country dominates the entire market. Therefore, only limiting China from obtaining EUV machines will not suit the original purpose of keeping China from making advanced technology nodes of 10nm or below.

Source : The Diplotmat

U.S. Aims to Hobble China’s Chip Industry with Sweeping New Export Rules

Stephen Nellis, Karen Freifeld and Alexandra Alper wrote . . . . . . . . .

The Biden administration published a sweeping set of export controls on Friday, including a measure to cut China off from certain semiconductor chips made anywhere in the world with U.S. equipment, vastly expanding its reach in its bid to slow Beijing’s technological and military advances.

The rules, some of which take immediate effect, build on restrictions sent in letters this year to top toolmakers KLA Corp, Lam Research Corp and Applied Materials Inc, effectively requiring them to halt shipments of equipment to wholly Chinese-owned factories producing advanced logic chips.

The raft of measures could amount to the biggest shift in U.S. policy toward shipping technology to China since the 1990s. If effective, they could hobble China’s chip manufacturing industry by forcing American and foreign companies that use U.S. technology to cut off support for some of China’s leading factories and chip designers.

“This will set the Chinese back years,” said Jim Lewis, a technology and cybersecurity expert at the Center for Strategic and International Studies (CSIS), a Washington D.C.-based think tank, who said the policies harken back to the tough regulations of the height of the Cold War.

“China isn’t going to give up on chipmaking … but this will really slow them (down).”

In a briefing with reporters on Thursday previewing the rules, senior government officials said many of the measures were aimed at preventing foreign firms from selling advanced chips to China or supplying Chinese firms with tools to make their own advanced chips. They conceded, however, that they had not secured any promises that allied nations would implement similar measures and that discussions with those nations are ongoing.

“We recognize that the unilateral controls we’re putting into place will lose effectiveness over time if other countries don’t join us,” one official said. “And we risk harming U.S. technology leadership if foreign competitors are not subject to similar controls.”

The expansion of U.S. powers to control exports to China of chips made with U.S. tools is based on a broadening of the so-called foreign direct product rule. It was previously expanded to give the U.S. government authority to control exports of chips made overseas to Chinese telecoms giant Huawei Technologies Co Ltd and later to stop the flow of semiconductors to Russia after its invasion of Ukraine.

On Friday, the Biden administration applied the expanded restrictions to China’s IFLYTEK, Dahua Technology, and Megvii Technology, companies added to the entity list in 2019 over allegations they aided Beijing in the suppression of its Uyghur minority group.

The rules published on Friday also block shipments of a broad array of chips for use in Chinese supercomputing systems. The rules define a supercomputer as any system with more than 100 petaflops of computing power within a floor space of 6,400 square feet, a definition that two industry sources said could also hit some commercial data centers at Chinese tech giants.

Eric Sayers, a defense policy expert at the American Enterprise Institute, said the move reflects a new bid by the Biden administration to contain China’s advances instead of simply seeking to level the playing field.

“The scope of the rule and potential impacts are quite stunning but the devil will of course be in the details of implementation,” he added.

Companies around the world began to wrestle with the latest U.S. action, with shares of semiconductor manufacturing equipment makers falling.

The Semiconductor Industry Association, which represents chipmakers, said it was studying the regulations and urged the United States to “implement the rules in a targeted way – and in collaboration with international partners – to help level the playing field.”

Earlier on Friday, the United States added China’s top memory chipmaker YMTC and 30 other Chinese entities to a list of companies that U.S. officials cannot inspect, ratcheting up tensions with Beijing and starting a 60 day-clock that could trigger much tougher penalties.

Companies are added to the unverified list when U.S. authorities cannot complete on-site visits to determine if they can be trusted to receive sensitive U.S. technology, forcing U.S. suppliers to take greater care when shipping to them.

Under a new policy announced on Friday, if a government prevents U.S. officials from conducting site checks at companies placed on the unverified list, U.S. authorities will start the process for adding them to the entity list after 60 days.

Entity listing YMTC would escalate already-rising tensions with Beijing and force its U.S. suppliers to seek difficult-to-obtain licenses from the U.S. government before shipping them even the most low-tech items.

The new regulations will also severely restrict export of U.S. equipment to Chinese memory chip makers and formalize letters sent to Nvidia Corp and Advanced Micro Devices Inc restricting shipments to China of chips used in supercomputing systems that nations around the world rely on to develop nuclear weapons and other military technologies.

Reuters was first to report key details of the new curbs on memory chip makers, including a reprieve for foreign companies operating in China and the moves to broaden restrictions on shipments to China of technologies from KLA, Lam, Applied Materials, Nvidia and AMD.

South Korea’s industry ministry said in a statement on Saturday there would be no significant disruption to equipment supply for Samsung and SK Hynix’s existing chip production in China.

However, it was necessary to minimise uncertainty through consultation with U.S. export control authorities, it added.

China’s commerce ministry said in a statement on Monday that it firmly opposes the U.S. move as it hurts the normal trade and economic exchange between companies in the two countries and threatens the stability of global supply chains.

“The U.S. should stop the wrongdoings immediately and give fair treatment to companies from all over the world, including Chinese companies.”

On Saturday, China’s foreign ministry spokesperson Mao Ning called the move an abuse of trade measures designed to reinforce the United States’ “technological hegemony”.

Source : Reuters