The release of Huawei’s 5G Mate 60 Pro smartphone has sparked speculation that the Biden administration will further tighten the screws on China’s technological development with intensified sanctions. But what could it do after previous measures apparently failed and what would be the likely retaliation from China?

“The time has come to end all US technology exports to both Huawei and SMIC to make clear any firm that flouts US law and undermines our national security will be cut off from our technology,” said US Congressman Mike Gallagher, chairman of the House Select Committee on China, referring to the two leading Chinese tech companies.

House Foreign Affairs Committee Chairman Michael McCaul and several of his colleagues, including Armed Services Committee Chairman Mike Rogers, Energy and Commerce Committee Chair Cathy McMorris Rodgers and Gallagher, sent a September 14 letter to Under Secretary of the Bureau of Industry and Security (BIS) Alan Estevez expressing their joint concern about the Huawei smartphone’s 7-nanometer chip.

“Due to the ubiquity of US-origin technology throughout the semiconductor supply chain, these reports suggest a violation of US export control regulations,” the letter said. “We are extremely troubled and perplexed,” the letter says, “about the Bureau of Industry and Security’s (BIS) inability to effectively write and enforce export control rules against violators, especially China.”

The letter goes on: “For more than two years, our committees and numerous members of Congress have written you regarding loopholes in BIS rules attempting, unsuccessfully, to restrict technology to Huawei and SMIC, among others. Despite this knowledge and continued Congressional pressure to adopt stricter policies, BIS has continued to grant licenses to Chinese Communist Party (CCP) controlled companies, such as SMIC, worth hundreds of billions of dollars. These companies support the CCP’s military and have been responsible for manufacturing semiconductors that power Huawei’s 5G devices, in violation of BIS’ export controls.”

McCaul and the other signatories recommend “full blocking sanctions” on Huawei and SMIC and criminal charges against their executives – even though they are foreign importers, not US exporters. All of the letter’s signatories are Republicans, all of whom have an interest in making President Joe Biden’s Democratic Party look weak on China in an election season.

Dylan Patel of SemiAnalysis, a California research and consulting firm specializing in the semiconductor supply chain, wrote: “As we approach the 1-year anniversary on [sic] the October 7^th China sanctions, it is abundantly clear that the export controls are failing… the Commerce Department’s standards were set at a level that will not ultimately inhibit China from breaking through the barriers set last fall.”

Patel recommends “a package of potential Western responses to China related to front-end equipment, chemicals, advanced packaging, and IP licensing that would totally shut out the CCP.”

Specifically, these include restricting exports of EDA (Electronic Design Automation) tools; ArF immersion lithography systems, photomasks, mask blanks and mask writers, epitaxy, etch, deposition, ion implant, CMP (Chemical Mechanical Planarization), metrology equipment and 3D IC packaging equipment; photoresists, etching gas and other chemicals; and servicing of existing equipment.

But would these intensified restrictions make it impossible for the Chinese to produce advanced chips such as the 7nm Kirin 9000 series processor designed by Huawei subsidiary HiSilicon and made by SMIC that powers the Mate 60 Pro or other advanced artificial intelligence (AI) processors?

Exports of ArF immersion lithography equipment to China are now restricted by the Netherlands and Japan, where they are made. But the Chinese have already bought many of these machines and, as demonstrated by the Mate 60 Pro’s processor, SMIC engineers know how to use them.

Exports of EUV systems, the most advanced type of lithography, essential for producing chips at 5nm and below, have been restricted since 2019. ArF immersion is the most advanced type of previous-generation DUV lithography.

Exports of epitaxial wafers and etch, cleaning, deposition, annealing, metrology and related equipment from the US, Japan and the Netherlands have also been restricted.

But the Chinese have also imported a lot of these machines and have started to make their own epitaxial wafers. In the case of SMIC and other companies that have adequately prepared, the latest sanctions might not stop them from ramping up production for another two or three years.

That is a guess based on the large amounts of semiconductor production equipment the Chinese have imported, representing roughly 25% of total worldwide sales in recent years.

It is not clear how large their stockpiles are or exactly what they include, however. And they are probably not going to reveal that publicly anytime soon. Last May, SMIC removed all mention of its 14nm process from its website, leading to speculation that US sanctions had crimped its production. Now, though, the company has 7nm chips in mass production.

The Chinese are well aware of the dangers posed by sanctions and have moved aggressively to mitigate those risks. While importing as much advanced equipment and materials as possible, Chinese firms are also working flat out to produce their own.

The lesson was driven home by the example of YMTC, China’s top NAND flash memory maker, which was unable to complete its second factory after sanctions cut off its access to US equipment and engineering services at the end of last year. YMTC is now switching to domestic and alternative foreign suppliers, but the company reportedly faces a long, hard slog.

Several Chinese companies make photoresists, including Jiangsu Nata Opto-electronic Material, Red Avenue, Jingrui, Shanghai Sinyang, and Xuzhou Bokang Information Chemicals. So far, industry sources say their products can only be used down to 28nm, but photoresists for more advanced process nodes all the way to 5nm are under development. China’s Kaimeite Gases is a certified supplier of ASML.

Shanghai Micro Electronics Equipment (SMEE) reportedly plans to deliver its first 28nm-capable DUV lithography system, which can make 28nm chips, by the end of this year.

Other Chinese equipment companies include AMEC (epitaxy, etch and deposition), Naura (etch, cleaning and deposition), CEC Electronics (ion implant), Sizone (CMP) and Kincoto (packaging equipment).

Chinese companies appear to be making – or at least trying to make –everything needed to produce semiconductors, from EDA to silicon and other types of wafers, chemicals and other materials, and the entire range of chip-making equipment and components. Their products are lower quality than imported ones and can still only meet a fraction of demand, but quality and quantity are improving every year.

More than 600 Chinese semiconductor equipment makers attended the China Semiconductor Equipment Annual Conference and Semiconductor Equipment and Core Components Exhibition held in Wuxi in early August.

At the event, as reported by the South China Morning Post, Jacky Lin, CEO of Honghu Suzhou Semiconductor Technology, said that “Without US sanctions, China’s semiconductor industry would probably have continued on its old path as a pure chip equipment buyer, manufacturing for others.”

Now, if “full blocking sanctions” are imposed, foreign suppliers might eventually lose the entire Chinese market. Some US politicians might not be worried about that, but US tech companies are, and it would probably be nearly impossible to persuade Europe, Japan, South Korea and Taiwan to completely abandon the Chinese chip market.

CEOs Jensen Huang of Nvidia and Peter Wennink of ASML have warned the US and European governments that whatever the Chinese cannot buy, they will make themselves. In an interview with DigiTimes, Wennick said that the restrictive policies of Western governments are compelling China to become highly innovative.

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