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US Chip Controls Could Take a Major Toll on China’s Tech Ambitions

by Chloe Baker
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China’s leaders are very annoyed with the US for stopping them from getting special technologies that help create powerful computer chips. Now, they need to find ways to fight back without messing up their plans for developing things like better telephones, robotics and other new tech industries.

China’s leader, President Xi Jinping, believes that computer chips used in all sorts of technology are very important. Their use supports China in their competition with the United States – from things like our phones and home appliances to jets. In February an official journal written by a Chinese scientist said this is a battle for technology.

China has factories that make processors for cars and kitchen appliances, but not the advanced chips used in computers and robots. U.S., Japan and Netherlands are all stopping China from getting the technology they need to build these powerful chips with the idea that they could be used to build weapons.

In March, Chinese leader Xi said that America was trying to stop China from getting stronger and called for people to stand up against it. However, even though America has been pressuring China, Beijing hasn’t harmed U.S. companies because they rely on the $300 billion of foreign chips they get each year to make smartphones, computers, and other electronic products.

The government is using a lot of money to help make computer chips faster and to reduce the need for technology from other countries.

China needs a special machine from a Dutch company called ASML which uses ultraviolet light to draw tiny lines on silicon chips. This would allow them to make faster, better transistors that are smaller than a fingernail. Unfortunately, China is not able to get this machine.

Making processor chips needs a lot of steps and supplies from the U.S., Europe, Japan, and other countries. The Chinese ambassador to the Netherlands, Tan Jian, said that if anything bad happens, China will take action to protect themselves. He wouldn’t say what the action might be but it won’t just be talking about it.

Experts are worried that because of the conflict, the world might split up into parts where computers, smartphones and other items from one place won’t work in another. That would make everything cost more money and slow down new inventions. Prime Minister Lee Hsien Loong from Singapore recently said at a meeting in China that different technology standards are causing separation between economies. This problem is getting bigger and bigger, which leads to huge costs.

The United States and China are not getting along right now because of disagreements related to security, how Beijing treats Hong Kong and certain religious groups, arguments over land ownership, and the fact that China makes more money from trade than it spends.

Things could get tough for Chinese companies in 2025 or 2026 if they don’t have access to new chips or the tools to build their own. Handel Jones says that when this happens, China will start falling behind other countries in technological development.

Beijing has sway because it’s the biggest maker of batteries for electric cars. A Chinese firm called CATL supplies these batteries to car companies in the U.S. and Europe, even Ford Motor Co., which is putting $3.5 billion towards its own battery factory in Michigan. As a result, China could hit back with taking away those same batteries from the U.S. if tensions get too high between the two countries.

On Friday, Japan and the United States decided to put restrictions on the exports of equipment used to make chips. Japan said they don’t want this technology to be used for military reasons, but China wasn’t specifically mentioned. A spokesperson from China suggested that making weapons out of science and technology issues will get them into trouble.

The Chinese government later announced that they will be looking into Micron Technology Inc., a US company which makes memory chips and is an important supplier to Chinese factories. They are investigating if there are any security threats in its technology and production, but did not give any more details. The Chinese military also use these semiconductors for creating things like jets, missiles, and other weapons.

China was worried when President Joe Biden restricted their chip making and also stopped Americans from helping Chinese companies with certain things in October. To help their manufacturers, the government of China is providing around $30 billion each year for research grants and other kinds of aid.

China’s biggest producer of computer memory, YMTC, got a massive 49 billion yuan ($7 billion) investment from two official funds this year. One of these funds is called the Big Fund, which was set up in 2014 with around 139 billion yuan ($21 billion). Over the years, this fund has put money into lots of companies!

The Big Fund created another organization named Big Fund II in 2019 and it has 200 billion yuan ($30 billion). Recently, Hua Hong Semiconductor stated that Big Fund II was donating 1.2 billion yuan ($175 million) to construct a Wuxi factory worth 6.7 billion yuan ($975 million).

In March, the government promised to help out the industry by offering them tax breaks and other support. There was no set price tag mentioned. On top of that, they also created “training bases” in 23 universities and 6 other educational establishments.

According to a scientist from the Institute of Semiconductors, there is currently a tech war between China and the U.S. and semiconductors are at its heart. He suggested that in order to succeed, China needs to become more independent when it comes to making semiconductor products.

A lot of money is needed for this kind of thing. Taiwan Semiconductor Manufacturing, or TSMC, the world’s top company in its field, has already started spending $100 billion over a 3-year period to increase their research and manufacturing capabilities.

Companies like Huawei and VeriSilicon can design powerful computer chips, similar to the ones made by Apple, Samsung, Intel and Arm. But without the specialized technology from TSMC and other companies from abroad, it can’t be manufactured.

In 2019, President Trump made it impossible for Huawei (a Chinese tech company) to use U.S. components or software in their products like smartphones. The American government suggested that Huawei may be helping the Chinese government gather information without them knowing, but Huawei says this isn’t true. In 2020, the White House went even further and prevented other companies including TSMC from using any sort of U.S. technology for producing chips for Huawei products.

The US government, with some other countries, made it harder for Chinese companies to make chips in August by stopping them from getting certain special software. In December, there was another new rule that blocked Chinese firms like YMTC, a chip maker, from buying chips played with US tools or methods.

The circuits in China’s foundries are spaced 28 nanometers apart, which is not as good as the circuits that TSMC and other global competitors can make. They can space their circuits just three nanometers apart, meaning they are ten times more precise than the Chinese industry! They’re even working to get it down to two nanometers.

Making the latest computer chips is really expensive and complicated. To do so you need really advanced tools and a lot of money, “not just billions but tens and tens of billions of dollars,” said Peter Hanbury from Bain & Co. According to Mr.Hanbury, if you don’t have this much money and the right tools it will be hard to make competitive server, PC and smartphone chips, meaning you would have to go to TSMC (Taiwan Semiconductor Manufacturing Company) instead.

China’s ruling party is trying to create their own tools, but there are too many countries using global networks. Huawei published a video in December that they were doing research on making EUV machines, which can cost $5 billion and take 10 years of study. But experts say China still has an incredibly long way to go before they can make this happen.

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Two people named Yu Bing who is based in Beijing and Mike Corder based in Amsterdam worked together on some research.

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