The following article, written for Friends of Socialist China by Mehmet Özbağcı, provides a brief history of the semiconductor industry, followed by a description of the ongoing ‘chip war’ initiated by the US in 2018.
Mehmet explains that the US is attempting to use its dominance of the semiconductor industry – particularly advanced chip design – to prevent China from developing its own semiconductor infrastructure and thereby impede China’s progress in advanced manufacture, artificial intelligence and modern military technology.
However, the US’s strategy – based primarily around sanctions – is likely to fail. The nature of China’s economic system is such that it can direct enormous resources to critical projects, and China has already made significant progress on domestic semiconductor design and production.
Mehmet concludes that “the US’s attempts to suppress China’s progress in semiconductors have been unsuccessful. The supply problems created by sanctions and the restriction on Chinese researchers’ access to new technologies have led the state, the private sector and academia to unite and work together towards the goal of technological self-reliance. It seems that China has not only developed short-term solutions to US sanctions, but has also paved the way to disrupt US control over semiconductors in the long term.”
Mehmet Özbağcı is a Turkish socialist currently studying towards a Master’s degree in Shanghai.
Throughout the industrialised world, steel was the peak of production technologies and the heart of all economic activities from the beginning of the 19th century to the second half of the 20th century. Machines that drove the industrial revolution, steamships and trains that shaped transportation and global trade, cannons, tanks and planes that changed the face of modern war… All of these were the result of steel production that became more widespread and efficient day by day.
The importance of steel began to decline from the second half of the 20th century for two reasons. First, technological advances and maturation of the production process reduced the strategic significance of the sector; and second, the emergence of nuclear weapons made direct war between great powers difficult and made steel, the raw material of conventional weapons, less important.
Towards the end of the 20th century, a new technology began to make different economic sectors (including transportation, communication and military) more and more dependent on itself. This technology was semiconductors, the basic building block of digital transformation. The increase in the processing capacity of semiconductors and the cheapening of their production led to the filling of every area of daily life and economy with digital technologies. (MILLER:2022)
The direct sales of semiconductors amounted to $515 billion in 2023, accounting for approximately 3.5 percent of global GDP. The main drivers of semiconductor demand are smart devices, computers, automotive, industrial technologies, and government services. Considering that semiconductors are vital for the existence and development of those technologies, it can be confidently stated that the impact of semiconductors on the global economy goes far beyond their share in global GDP: According to some calculations, the annual contribution of semiconductors to the global economy between 1995 and 2015 is more than $3 trillion. (SIA:2024)
Like steel, semiconductors also transcend the economic and social sphere and become decisive in the military field: air defence systems, drones, modern missile batteries, electronic warfare systems and surveillance technologies cannot be produced without semiconductors. But the military importance of semiconductors goes far beyond their current uses. According to many military analysts, artificial intelligence (AI) applications and autonomous weapon technologies, which will completely change the face of the battlefield, depend on access to the latest technology semiconductors. (Gargeyas:2022)
The importance of semiconductors has placed them at the centre of China-US rivalry. The aim of this article is to examine the mutual moves of these two actors in the process following 2018 and to list the factors that could be decisive in the semiconductor competition based on them.
United States: protectionist technology leader
The US, which is the birthplace of semiconductor technology, is the leader of the sector with a 48 percent share. Semiconductors are the US’s fourth largest export item. But this leadership does not stem from direct production. Semiconductor production is largely concentrated in East Asia and especially in the island of Taiwan. The US market share stems from its specialisation in semiconductor design and the licences it has in the sector: The copyrights of the main semiconductor architectures and the technologies that produce them belong to the US. (SIA:2024, MILLER:2022)
The US has considered its de facto monopoly on semiconductor technologies an important part of its national security long before 2018. Semiconductor manufacturers were also included in the Wassenaar Arrangement on export control for critical military technologies for American interests in 1996. (ACO:2022)
US protectionism specifically targeted China’s attempts to establish a semiconductor production substructure in 2018: the Trump administration banned the export of various technologies of critical importance for semiconductor production to China, claiming that China’s state incentives led to unfair competition. (MILLER:2022)
In 2020, Chinese communication giant Huawei and China’s largest semiconductor manufacturer SMIC’s access to US suppliers and technologies was effectively cut off. This move was justified on the basis of US national security interests and the relations of those companies with the PLA. (MILLER:2022)
In 2022, the sale of graphics processing units (GPUs) with parallel processing capacity required for advanced AI applications to the Chinese market was officially banned. (LESWING:2023) This practice was also justified on the basis of national security. The same year, the CHIPS and Science Act, which was announced, aiming to move the production chain to US soil and limit the relations of US companies with China. (WH:2022)
All these moves show that the US sees China’s establishment of a domestic chip infrastructure as a threat to its own economic and military security. It may be anticipated that China, which has its own chip production facilities, will also make rapid progress in chip design, thereby eliminating the US’s de facto monopoly. So China’s building its own production infrastructure could mean that the US will never have its nearly fifty percent market share again. In the military field, it is clear that Chinese chip production infrastructure will provide a technology advantage to the PLA against the US army, which is dependent on East Asia for chip production. Similarly, it is claimed in US Department of Defense reports that China has produced new war doctrines that focus on artificial intelligence requiring access to the latest technology semiconductors. (USDD:2022)
China on the path of technological self-reliance
China’s 14th Five-Year Plan, which covers the period from 2021 to 2025, defines semiconductors as one of the seven key areas of vital importance for China’s technological self-reliance and national security. The plan contains extensive commitments to provide state support for research, development and production activities related to semiconductors. (GPW, 2021) Considering that the first response to the US sanctions against the Chinese semiconductor sector was government support, these commitments can be read as a challenge to the process that the US started in 2018. In this final part of the article, we will discuss China’s response to US sanctions.
In 2021, Alibaba developed an SSD chip for cloud computing called Zhenyue 510, which is based on the open source RISC-V architecture. This development shows China’s tendency to turn to open source alternative architectures to avoid US intellectual property restrictions.
Another tendency is the use of licences obtained indirectly, as in the case of Zhaoxin. This Chinese company acquired the right to produce CPUs with the US Intel x86 architecture by buying another US company that was not active at that time. (SHILOV:2023)
Another method that Chinese companies use to overcome the sanctions is to reverse engineer existing semiconductor production technologies in China. The SMIC Kirin 9000s chipset used by Huawei’s Mate 60 Pro smartphones, which were launched in 2023, was produced by such a method. The fact that the Kirin 9000s is a 7nm advanced chipset was interpreted as a sign of the failure of US sanctions (EDGERTON:2023), since the main goal of the US sanctions was to prevent China from producing chips with transistors smaller than 10nm.
Finally, China is showing a tendency to change the context of the semiconductor sector with long-term R&D projects: The goal here seems to be to move beyond silicon-based semiconductor technology, which is connected to the US with numerous licences and which has been in use since the middle of the 20th century, and to switch to a new technology. Two technological developments that were shared with the public by Chinese researchers in recent days confirming this observation: Tsinghua University has developed a next-generation chip that uses photon particles instead of electric current and offers parallel processing capacity for artificial intelligence applications (ZHANG:2023) and Tianjin University has produced a processor with graphene, an alternative material to silicon. (ZHANG:2023.2)
All these developments show that the US’s attempts to suppress China’s progress in semiconductors have been unsuccessful. The supply problems created by sanctions and the restriction on Chinese researchers’ access to new technologies have led the state, the private sector and academia to unite and work together towards the goal of technological self-reliance. It seems that China has not only developed short-term solutions to US sanctions, but has also paved the way to disrupt US control over semiconductors in the long term.
Miller, Chris. (2022). Chip War: The fight for the world’s most critical technology. Simon & Schuster Ltd.
SIA, Semiconductor Industry Association. 2023 STATE OF THE U.S. SEMICONDUCTOR INDUSTRY, 2024, https://www.semiconductors.org/2023-state-of-the-u-s-semiconductor-industry/
Gargeyas, Arjun. (2022). The Role of Semiconductors in Military and Defence Technology. Defense and Diplomacy Journal Vol. 11 No. 2
ACO, Arms Control Association. (2022). The Wassenaar Arrangement at a Glance. https://www.armscontrol.org/factsheets/wassenaar
LESWING, KIF. U.S. curbs export of more AI chips, including Nvidia H800, to China. CNBC. https://www.cnbc.com/2023/10/17/us-bans-export-of-more-ai-chips-including-nvidia-h800-to-china.html
TWH, The White House. (2022). FACT SHEET: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China. https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/
USDD, US Department of Defense. (2022). Annual Report to Congress: Military and Security Developments Involving the People’s Republic of China
GPW, Global Policy Watch. (2021). CHINA’S 14TH FIVE-YEAR PLAN SPOTLIGHT ON SEMICONDUCTORS. https://www.globalpolicywatch.com/wp-content/uploads/sites/45/2021/04/1-14th-FYP-Article-SEM-14th-FYP-Mark-Up-Draft-8.pdf
SHILOV, Anton. (2023). Zhaoxin Unveils KX-7000 CPUs: Eight x86 Cores at Up to 3.70 GHz. AnandTech. https://www.anandtech.com/show/21189/zhaoxin-unveils-kx7000-cpus-eight-x86-cores-at-up-to-370-ghz
EDGERTON, Anna. (2023). Advanced Chip in Huawei’s Newest Phone Exposes Limits of US Sanctions. Bloomberg. https://www.bloomberg.com/news/newsletters/2023-09-06/huawei-phone-chip-exposes-limits-of-us-sanctions
ZHANG, Tong. (2023). Chinese scientists create chip that can perform AI task 3,000 times faster than Nvidia’s A100. South China Morning Post. https://www.scmp.com/news/china/science/article/3239998/chinese-scientists-create-chip-can-perform-ai-task-3000-times-faster-nvidias-a100-study
ZHANG, Tong. (2023). Chinese, US scientists create world’s first graphene semiconductor in feat that could transform computer chips. South China Morning Post. https://www.scmp.com/news/china/science/article/3247470/chinese-us-scientists-create-worlds-first-graphene-semiconductor-feat-could-transform-computer-chips