China has made technological self-sufficiency a top national priority, with Beijing supporting chip design and manufacturing efforts. But a gap remains between the country’s peak technological level and the rest of the world. The 7 nm chips at the heart of the new Huawei smartphone are a crucial indicator.
When the Shanghai-based semiconductor foundry SMIC used US technology to make an advanced chip in China last year, it raised eyebrows. The move came amid US-China tensions and a US Commerce Department probe into the firm’s processors. It also showed how hard it is to keep China isolated from the cutting edge of chip-making.
According to knowledgeable people about the fab, California’s Applied Materials Inc (AMAT.O) and Lam Research Corp (LRCX.O) used the US equipment. The US companies supplied the tools to help SMIC develop an advanced 7-nanometer chip for Huawei last year, the sources said, asking not to be identified as the information is confidential.
Developing a new node of chip manufacturing requires expensive equipment and a staff trained to operate it. It takes years to build up a new node and even longer before it becomes commercially viable. That’s why companies that use advanced processes tend to operate multiple fabs, each equipped with the latest technologies.
Thanks to the inventory of US and Dutch equipment, SMIC has been able to advance its production lines and move on to the more advanced 5nm process node, the sources said. However, the company will not be able to produce a whole batch of Kirin chips for future iterations of the flagship Mate 60 Pro smartphone until 2025.
SMIC’s use of American tech has stoked concerns in Washington that Beijing is circumventing technology export controls. In 2021, the Commerce Department added SMIC to its “Entity List,” which means it can only buy technology from US-based suppliers with a license from the department. The list was created out of fears that SMIC is using technology to advance China’s military capability, though the company has denied it.
The US has been reluctant to cut SMIC completely from its technology supply chain, partly because of the potential disruption to global semiconductor production. In addition to avoiding the need for an export license, SMIC is using its US-based partners to import components and equipment from China without triggering the rules that would require them to get one. This is an attempt to avoid US penalties if caught. However, this strategy may prove difficult to continue in the long run as the US starts imposing more sanctions on Chinese firms. That could lead SMIC and other Chinese chipmakers to seek US-based technology directly instead of through its foreign-based partners. If that happens, it could trigger a backlash from the Chinese government.
