Elite China Reacts to Export Controls: Japan, the Netherlands, and Huawei
“If we continue to permit the influence of ignorant wolf-warrior thinking in society, eventually we’ll find ourselves at the point of no return.”
Bloomberg reported on January 26 that Japan and the Netherlands are set to join the US in applying semiconductor export controls on China, similar to the ones the US imposed in October 2022.
On January 30, reports emerged that the Biden administration has stopped granting licenses for US companies to export to Huawei. As it was already under export controls, this new move completely closes Huawei off to US-origin technology.
Both of these are major blows to China’s technology ambitions. Below are some excerpted translations taken from Chinese state and independent media on US export controls and the simmering tech war. They cover:
Why China may still be confident despite US containment;
How “wolf-warrior” thinking misled the Chinese semiconductor industry;
Which Huawei product will be worst-hurt by a US technology cutoff;
What the Chinese government can do to help domestic manufacturers;
And why this reminds some people of the Opium Wars.
“Voice of China”
People’s Daily printed this piece on February 2 as part of its Zhongsheng 钟声 column, which mainly comments on international affairs. Given the politically coded method with which People’s Daily columns and pen names are created, Zhongsheng pieces signal the stance of the central leadership on global issues — literally the “voice (sheng) of China (zhong).” Here’s an excerpt:
The facts have shown over and over again that the US and China cannot decouple. That the US is forcibly pushing “decoupling” with China, to the point of inflicting severe consequences onto itself and its allies, is a move that goes against the principles of economics. It is an irrational and unsustainable choice. Economic globalization is an objective necessity for developing productivity, and is a force of history that cannot be stopped. Even in the face of American containment and suppression, China has taken first place in global commodity-trade volume rankings for the past six years; every minute, around 73 million yuan [$14.45 million] in commodities are traded between China and the rest of the world on average. US “decoupling” with China cannot change the reality of economic globalization; it can only give other countries more opportunities to collaborate with China. China has the world’s most comprehensive industrial system and a domestic demand market with world-leading potential. As a major nation, it possesses the fundamental requirements for domestic circulation, which gives it strong protection against containment and powerful self-confidence. “Decoupling” cannot halt China’s progress in innovation indicators, nor can it halt the path toward high-quality development for China’s economy.
No More Wolf-Warrior Talk
Perhaps unsurprisingly, the chip conversation has become sensitive in recent months. The piece from which the below excerpts were taken was deleted from WeChat and other platforms within a day of publication. Wu Zihao 吴梓豪, a self-proclaimed semiconductor veteran with twenty years of experience in the industry and a former TSMC employee, lambasts overconfidence in the Chinese industry and explores where Chinese chips go from here:
Photolithography is already the weakest link among all domestically produced chipmaking equipment. The US, in directly adding SMEE to the Entity List, undoubtedly makes our weakest link even weaker and deals a heavy blow upon full localization of the semiconductor manufacturing process.
But the crackdown also shines light on hidden demons. Only when the tides ebb can you tell who is swimming naked. Domestic semiconductor equipment manufacturers who have been hyped up over and over again by capital markets: the time has come to test your true might.
After a series of dizzying sanctions from the US in 2022, the author is reminded of when he first came to the mainland. In the years since, the domestic semiconductor industry has made such great achievements in the blink of an eye. That the US now sees it as a thorn in the flesh is an alternative proof of strength.
Assuming that everything goes perfectly, the author expects five years at the very least — with ICP, CVD, metrology, e-beam, and inline — before China can make 28nm chips with all-domestic manufacturing equipment. But this does not include lithography, which is essential for all-domestic production. That is to say, with national resources all-in and smooth progress, we will have only the opportunity to produce 28nm chips with domestic equipment in 2030.
In the previous few years, we made use of the fact that the US didn’t fully lock us in and utilized non-standard equipment to transition to chip production. Currently, standard and non-standard equipment at domestic fabs can easily produce 14nm, 10nm, or even 7nm, but here we are talking about fully domestic production. If we really have to make the entire production process domestic, after years of unremitting efforts and limitless resource investment from across the country, in 2030 we will not only not progress, but regress — all the way back to 28nm.
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When, in 2030, the rest of the world is at least all using TSMC’s A14, we’ll still be producing 28nm! What will be the point of all this nationwide mobilization and resource investment then? Even after all this, we still won’t be at the finish line; we still have the Everest that is EUV to conquer.
The US embargo can indeed accelerate our science and technology R&D, but if we continue to permit the influence of ignorant wolf-warrior thinking in society, eventually we’ll find ourselves at the point of no return. That will annihilate us. There’s nothing wrong with wanting to disrupt the current order, but we have to be clear-eyed about our current predicament. To broadcast self-aggrandizing talk when you still rely on someone else’s milk is pure ignorance. When we still don’t yet have capacity for disruption, we should hunker down and bide our time in order to identify the perfect opportunity for striking a deadly shot. That would be an actually possible way to success.
How will cutting off US exports hurt Huawei? From the investigative team at Caijing Magazine:
If the full cut-off policy comes into force, Huawei’s end-user businesses (like smartphones and personal computers) and operator businesses (like macrocell base stations) will be directly affected. Though Huawei has spent the last four years pushing alternative plans, its three core businesses still rely on US products and technologies to different extents.
The core business that relies on the US the most is the end-user segment. At the moment, Huawei smartphones still require Qualcomm 4G chips, while its personal computers rely on semiconductors sourced from Intel, AMD, Nvidia, etc. If licenses will no longer be issued, Huawei smartphones and personal computers will lack essential chips. Huawei’s vehicle vertical has already deprioritized manufacturing parts for intelligent connected vehicles (ICVs) due to restrictions on electric machine, module, and laser radar supply chains. At the moment, it has transitioned to providing smart solutions for vehicle manufacturers, specifically in marketing new models and customer-facing sales. As a result, the impacts on its vehicle vertical will be limited.
As for Huawei’s operator businesses, sourcing parts for macrocell base stations still means reliance on US semiconductor firms. By calculating the monetary values of various parts, more than 20% of the parts Huawei used to build base stations in 2020 came from the US. But HiSilicon, Huawei’s semiconductor subsidiary, is rapidly domesticizing the production of key parts. Small base stations do not require massively parallel processing and rarely rely on expensive parts like FPGAs, so Huawei has largely achieved fully domestic production for those.
A telecommunications professional told Caijing Eleven [Caijing’s investigative column] that Huawei continues to work with telecom semiconductor firms like Xilinx, Texas Instruments, Broadcom, Onsemi, and Analog for its FPGAs, power semiconductor devices, and DSP chips. Moreover, Huawei’s telecommunications equipment mostly uses 28nm mature-node chips, which the company has sufficiently stocked for the near future. But as technology develops in the future, it will have to rely on manufacturing technologies for 14nm and 7nm to make energy-use efficient and reduce sizes.
Globalizing Chinese Chips
Gu Wenjun 顾文军, a prominent industry watcher and chief analyst at semiconductor research platform ICwise, penned a piece on the newly announced semiconductor export controls for Caixin on February 1. He argues that a fairer market and favorable government incentives can still partially salvage Chinese chipmaking:
After the US, Japan, and the Netherlands reached the agreement, some politicians in Japan said China will “100%” retaliate against Japan, and that Japanese firms should seek opportunities in other markets. No matter what Japanese politicians actually mean by this, the Chinese industry absolutely should not fall into the trap. Some retaliatory actions are essential, but Western sanctions on China do not mean China should cut off contact from global markets. In a moment like this, China should, more than ever, avoid “decoupling” from global supply chains in a fit of rage and adding fuel to American attempts at isolating China, which will further strengthen the US’s alliances with other countries.
Now, the Chinese [semiconductor] industry should double down on collaborating with global supply chains. Even if they won’t sell the most advanced DUVs to China, continued Dutch and Japanese support is still essential for mature technologies; they themselves would like to do so as well. The Chinese industry should approach international supply chains with an open heart and seek collaborative partners. After all, this is a decision that Japan and the Netherlands made under pressure from the US, and Western equipment companies merely comply with orders from their governments.
International collaboration has always been a major force advancing Chinese technology. As long as the door hasn’t fully shut, we should do everything we can to push for more. Since there remain opportunities for collaboration between China and Western companies, China should especially cherish opportunities to work with foreign firms. Every multinational corporation has a limited budget. We should hold onto every opportunity for foreign investment, including by having foreign firms build factories in China. China should approach the international semiconductor supply chain in a categorized manner. For companies that are friendly to China, especially those whose Chinese investments include technologies that are more advanced than existing ones on the Mainland, we can consider providing some kinds of subsidies under the condition of them reaching a certain “China percentage” in their manufacturing, so as to have these foreign investments drive domestic supply chains forward. We must apply necessary retaliations against measures that go against globalization. For companies that are antagonistic to China, we should move forward with punishments. But our reactions should not become emotional or populistic; instead, we should strictly follow international norms and issue punishments according to the law, in order to firmly oppose reverse-sanctioning measures.
Takes from the Broader Commentariat
There has also been a decent amount of chatter from general-interest current affairs commentators. Next up: four incisive takes from popular commentators and academics on what the export controls mean for China’s foreign relations.