The United States has continued to impose bans from the Trump to the Biden administration in an attempt to curb China’s development of advanced chips. Even countries in the supply chain such as Taiwan, Japan, South Korea and the Netherlands have been forced to choose sides. In the meantime, China has continuously increased its investment in semiconductors to break the U.S. stranglehold. Since Huawei surprised the market by launching its flagship smartphone Mate 60 Pro in late August last year, whether the company can break through U.S. restrictions and move toward 5nm chips has attracted global attention.
The Biden administration issued export controls aimed at banning Chinese chipmakers from acquiring U.S. chipmaking tools used to make 14nm or more advanced chips in 2022. Nevertheless, Huawei announced that its latest flagship smartphone reached 5G speed levels during testing and can make satellite calls on September 29, 2023. Mate 60 Pro is regarded as marking Huawei's return to 5G technology. The most eye-catching feature of the smartphone is that it contains a GPU developed by Huawei, Kirin 9000s application processor designed by Huawei HiSilicon. Kirin 9000s is produced by SMIC using 7nm advanced process technology. This may make Washington uneasy. It is reported that Huawei has recently applied for a patent with its chip production partner for self-aligned quadruple patterning (SAQP) technology, which is expected to increase transistor density and thus enhance performance while reducing dependence on extreme ultraviolet (EUV) lithography machines made by the Dutch manufacturer ASML. A senior official from the U.S. Department of Commerce said at a hearing before Congress that the Biden administration is investigating whether SMIC has the ability to use U.S. tools to produce chips for Huawei, which may violate U.S. export regulations, on March 21.
The three giants, TSMC, Intel and Samsung, have all entered the 3nm advanced process. Even if Huawei can make a breakthrough and realize the 5nm process, which in itself is not an easy task, it is still a generation behind the three global leaders in the industry. Thriving development in artificial intelligence (AI), big data and other technological fields leads to the explosive growth of market demand for computing power. The United States has imposed restrictions on the export of NVIDIA and other companies’ AI chip products to China. NVIDIA plans to produce downgraded AI chips to circumvent U.S. bans. This, on the contrary, has made Huawei's computing power GPU chips in short supply with rising prices.
It is also noticeable that, facing successive technological blockades by the United States in recent years, Beijing again launched a new China Integrated Circuit Industry Investment Fund (known as the Big Fund) of 300 billion yuan, a huge increase from two previous funds which stood at 138.7 billion yuan and 204.1 billion yuan. It is reported that China’s Ministry of Finance will contribute 60 billion yuan, and the rest of the amount will be raised from other institutions. The first Big Fund focused on the semiconductor chip manufacturing industry and also took into account investments in chip design, packaging and testing equipment and materials. The second Big Fund focused on semiconductor manufacturing and equipment companies, while the third Big Fund aims to make breakthroughs in the field of chip manufacturing equipment, a focus of current sanctions.
China’s Foreign Ministry Spokesperson Mao Ning once made a strong statement that U.S. sanctions, containment and suppression will not stop China's development and will only strengthen China’s determination and ability to be self-reliant and pursue technological innovation. The Financial Times (FT) reported in recent days that China aims to “replace foreign technology with homegrown solutions.” China has implemented “stricter government procurement guidance…in favor of domestic options,” and “U.S. microprocessors from Intel and AMD are phased out of government PCs and servers.” According to data from the International Semiconductor Industry Association (SEMI), about 36% of semiconductor equipment used in China is domestically produced. And against the backdrop that the global sales of semiconductor manufacturing equipment decreased by 2% year-on-year, sales in China registered a year-on-year growth of 28% in 2023. SEMI estimated that equipment shipments to China would surpass a record $30 billion in 2023, widening its lead with other markets, and the Chinese market was the largest market in global semiconductor equipment spending. In the meantime, TrendForce, a market research agency, also pointed out that China most actively expanded production in 28nm and more mature processes. Eighteen new wafer fabs will be put into operation this year, driving the rapid expansion of mature process production capacity. It is estimated that China’s mature process production capacity will account for 39% of the global capacity in 2027. As far as Taiwan is concerned, China is catching up in mature process. Manufacturers such as UMC, PSMC and VIS may face new challenges.
（Wo-chiang Lee, Professor of the Department of Banking and Finance at Tamkang University）
（Excerpt translated to English by Cindy Li）
