The US government appears confident putting draconian measures in place to limit China’s access to advanced chips and related technologies in the name of national security can slow or even halt the country’s long-term industrial development.

As recent events have shown, the strategy has direct consequences on the country’s trade, tech businesses and allies, and, while partially effective in the short run, it is certainly fuelling China’s determination to become self-sufficient in chips.

Just as countries threatened with new tariffs by incoming US President Donald Trump have vowed to retaliate, China is not sitting idly by as the US ups export controls and cuts off supplies of critical components.

Earlier this week, a Chinese stock market regulator opened a probe into Nvidia for allegedly violating anti-monopoly laws.

Last week, China’s Ministry of Commerce banned the export of strategic minerals including gallium germanium and antimony, which have both industrial and military applications, to the US.

The move was followed by four major Chinese industry associations claiming US chips are not safe or reliable and encouraging members to source domestically, after airing their complaints about new restrictions.

While analysts insist there is no truth to the accusation, it clearly shows the efforts China is willing to take to wean itself off Western technologies. If its companies cannot have access to the most sophisticated chips, they will find alternative sources for other components. 

The addition of 136 Chinese companies to the US entity list is the third move by the nation’s Department of Commerce in as many years to tighten mainland companies’ access to chip technology.

Hundreds of Chinese companies have been added to the US list, along with a number in Japan, South Korea and Singapore to close loopholes allowing Chinese companies to import restricted products from those countries.

Richard Windsor, founder of respected technology blog Radio Free Mobile, wrote a number of companies (including those from the US) had been producing equipment outside of the US to avoid previous restrictions, noting the new rules make it more difficult for China to secure equipment capable of manufacturing chips at 20nm and below.

The China Semiconductor Industry Association argued the latest measures once again “undermined the long-standing consensus of fairness, reasonableness and non-discrimination” in the global semiconductor industry, and the purpose of fair trade of the World Trade Organisation (WTO).

Fear-mongering
Unilateral moves by the US were introduced without presenting a clear danger to telecoms operators’ mobile or core networks much less national security.

In 2018, the administration of then President Trump began increasing pressure on allies to ban equipment from Chinese telecoms giant Huawei from their new 5G networks, starting with Australia, highlighting vague security concerns yet providing no specifics of known security breaches with the vendor’s hundreds of customers. 

Former Australian PM Malcolm Turnbull was only able to give this flimsy reasoning for supporting a Huawei ban: “in an uncertain world, this is a hedge against contingencies where people who we have friendly relations with, we may not necessarily be friends with in the future”.

Huawei rotating chair at the time Guo Ping simply stated the obvious: the US had “no evidence, nothing” to back the claims.

Far from not being secure, as revealed by CIA whistle blower Edward Snowden, the US National Security Agency (NSA) resorted to hacking the servers of Huawei after failing to be able to access its networks. Snowden’s leaks showed the NSA had no problem accessing US operators’ networks, thanks to legal intercept requirements.

Since then, the US continued to strongarm more allies, including New Zealand, Japan, South Korea, the UK and the Netherlands, to back its crackdown on Chinese companies, without giving the companies an opportunity to defend the charges.

Add a proposed ban on TikTok and earmarking billions to fund the replacement of Huawei and ZTE equipment to other ill-advised protectionist initiatives.

Over the past three years, the administration of current US President Joe Biden administration expanded the play book to cover all Chinese companies seeking to import or produce advanced chips and equipment which the US deems a threat to national security since they have military applications.

High bandwidth memory chips, the latest rage with the AI boom, were added in the latest wave of new controls.

No doubt China poses a serious threat to Taiwan, given a vow to reunify the island, but the military use argument for advanced chips carries little weight as any component can be used to make equipment for the armed forces.

In addition, continual moves to squeeze China’s access to global components and limit free trade risks pushing the country’s leadership away from making commitments supporting competitive coexistence.

And arguments Chinese Communist Party rules make its technology champions Huawei, ZTE and SMIC beholden to the government raise the question: aren’t AWS, Microsoft, Cisco and many others with billions of dollars of contracts by the US Department of Defence equally wedded to the government?

Accelerating independence
Huawei defied all types of sanctions in its battle for survival, with its handsets making a rapid comeback over the past 15 months.

In China its share of shipments rose from 11 per cent in Q2 2023 to 18 per cent in Q3, putting it second behind Xiaomi.

Specialist semiconductor market service TechInsights noted in 2023 Huawei’s Mate 60 Pro smartphone showed China was narrowing the technological gap, though the gains were not repeated with the Mate 70 series, with what it branded an “underwhelming performance” of its chipset.

The US strategy is certainly having an impact.

China, however, now can make deep ultraviolet lithography machines and Shanghai Micro Electronics Equipment filed a patent for extreme ultraviolet equipment, which South China Morning Post reported is still under review, but indicates progress.

Local media also reported ChangXin Memory Technologies started mass production of second-generation HBM chips, two years earlier than previously estimated. Yes, US and South Korean chipmakers are soon moving to the fourth generation, but China is catching up.

Industry pundits generally agree the US curbs have accelerated China’s push to reduce its reliance on imported chips, with some reckoning by as much as five years or more.

Global impact
Let’s not forget China accounts for a large share of US chip exports, which reached $9.6 billion in the first ten months of 2024, and 46 per cent of Qualcomm’s fiscal 2024 revenue, which ran to 29 September.

Qualcomm, Nvidia and Intel have been hit to varying degrees by previous sanctions, which are impacting companies in the sector around the world.

Dutch chip equipment maker ASML expects revenue from China to drop nearly 50 per cent year-on-year in 2024, with the country’s share forecast to fall to about 20 per cent from 48 per cent.

The irony is for most of the past generation, the US consistently argued for freer trade and pushed against protectionism.

In 2001, the nation gave China permanent most-favoured-nation status, putting its companies on a low-tariff regime, spurring a 20-year economic boom.

This all changed under then President Trump nearly eight years ago.

At the WTO’s latest ministerial conference in Abu Dhabi early this year, the group failed to break a long-standing deadlock on new initiatives, stymied by rising trade friction and protectionism between major powers.

Some policy experts would argue the measures are justified by China failing to open its markets, particularly services including banking.

While the sector is in theory open to full non-domestic competition, overseas banks face numerous obstacles including a lack of competitive neutrality and stricter regulatory requirements, keeping their marker share from rising.

But there are other more appropriate avenues to air grievances, including the WTO, which give both parties the opportunity to articulate their cases.

The US government started a fight and is unlikely to claim victory anytime soon.

Windsor lamented the US measures would accelerate an ongoing decoupling and divide the technology sector into two distinct and incompatible parts. “The Balkanisation of the global network inevitably means less growth for the technology sector in the long term.”

The US has underestimated China’s determination to innovate, its vital role in global supply chains and the effect the restrictions have on costs.

Its push for technological self-reliance may have been slowed, but its long-term vision is clearer than ever, thanks in part to US hubris.  

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.