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The US has long dominated the advanced semiconductor industry and is going to great lengths, and expense, to stop China from catching up.
Key points:
- The US wants to prevent China from being able to make cutting-edge chips
- China says it has started mass producing 14-nanometre chips
- Smaller chips are more advanced and are crucial for things like AI and defence systems
The tiny computing components are essential for almost anything that runs on power these days — from home appliances to consumer technology like smart phones, computers and cars, through to defence systems, satellites, AI systems and weapons of war.
On top of pumping billions of dollars in subsidies and other incentives into its industry, the US has sought to build alliances with South Korea, Japan, the Netherlands and Taiwan to boost production.
It has also taken steps to drastically restrict China's ability to access the critical technology, also known as microchips.
But experts warn the latest suite of US moves in the so-called "chip wars" could also backfire, and push China's industry to develop its own advanced semiconductors.
'They're dying to get better chips'
ANU Crawford School of Public Policy associate professor Andrew Kennedy told the ABC there was a "very significant gap between what the leading Chinese chip makers can do" compared with world-leading producers.
To give an idea of how massive the push from China is, it has announced a $US1.4 trillion plan to further its chip technology and manufacturing sectors.
It aims to build 31 semiconductor plants within the next two years.
That would likely help it reduce the roughly $US150 billion it spent importing semiconductors in 2021 alone.
Earlier in September, China announced it was mass producing 14-nanometre chips in Shanghai, its semiconductor hub.
These chips are used in many devices, but they're not sufficient for AI or advanced defence systems.
Reports from outside China emerged in July, suggesting it was technically possible for the country's Semiconductor Manufacturing International Corporation to manufacture 7-nanometre chips.
That's led to some saying the US restrictions haven't worked, but little is yet known of China's apparent breakthrough and some remain skeptical about the claim.
The leading chips come out of South Korea and Taiwan — which manufacture about 60 per cent of the world's microchips and 90 per cent of advanced chips.
They are 3-nanometre chips, and China is desperate to improve what it can make.
"They're dying to get better chips than the 14 [nanometre]," Dr Kennedy said.
"They want to be at the cutting edge."
What measures has the US taken?
The US's main focus at the moment is on limiting China's ability to develop or access the more high-tech microchips.
Washington has justified this by claiming that restricting chips to China protected national security and foreign policy interests.
It also allows the US to maintain its dominance in this field of technology.
"The immediate concern is that [the US] don't want advanced chips to be going to the Chinese military," Dr Kennedy said.
"It may be in the back of their minds that they want to restrict China's ability to make chips … for general strategic competition reasons."
In December, the US, in agreement with 42 other countries, implemented controls to restrict the use of the software, known as EDA, that is used to manufacture advanced chips.
On top of this, it announced further measures in September.
It has restricted exports of the equipment needed for making advanced chips, making it increasingly difficult for US companies to supply Chinese firms with the tools they would need to develop a sub-14-nanometre chip.
US officials have also instructed leading chip manufacturers to stop exporting advanced chips to China, in a move that's expected to limit the ability of Chinese companies to work on cutting-edge projects such as image recognition.
"What the US is trying to do is restrict exports of technology to China that would allow it to make chips smaller than 14 nanometres," Dr Kennedy said.
"The smaller the chip, the more advanced it is."
Senior US politicians have also urged the Biden administration to blacklist Yangtze Memory Technologies, a Chinese state-owned semiconductor company that has reportedly supplied Huawei with chips for mobile phones.
US wants China-free supply chain
Meanwhile, the US is also investing huge sums to increase local manufacturing of advanced chips.
"America invented the semiconductor, but today produces about 10 per cent of the world's supply — and none of the most advanced chips," the White House said in August.
"Instead, we rely on East Asia for 75 per cent of global production"
Last month, $US52 billion ($77.77 billion) in subsidies for the semiconductor industry was announced, along with tax incentives to build chip manufacturing plants in the US.
So far, the US has plans to build 12 manufacturing plants, including a $12 billion plant in Arizona with the world's leading chip manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC).
The moves are partly about increasing American manufacturing as demands to fill a chip shortage exacerbated by COVID and the war in Ukraine continue.
"It will strengthen American manufacturing, supply chains, and national security, and invest in research and development, science and technology," the White House said.
But it's just as much about making sure the US and its allies maintain a technological advantage over China, which has been dependent on importing advanced chips, Dr Kennedy said.
"[It] will also ensure the United States maintains and advances its scientific and technological edge," the White House said.
Washington has been working to create an advanced microchip supply chain that excludes China.
The US has made arrangements with Japan, Taiwan and South Korea.
For its part, Japan has teamed up with TSMC to build a $US7 billion facility in the south of the country.
South Korea is a major supplier of leading microchips, and last May it announced a massive $US450 billion plan to boost its semiconductor manufacturing capabilities over the next 10 years.
As part of its response to the US restrictions, China last week sent Li Zhanshu, the third-highest ranking member of the Chinese Communist Party, to South Korea.
While there, Mr Li said China supported "realising cooperation in cutting-edge technology sectors and managing supply and industrial chains smoothly and stably".
Restrictions need to be carefully implemented
If further, tighter restrictions are rolled out, the aim of limiting China's technological development might backfire.
"If you allow foreign companies operating in China to continue to import this stuff then they won't have as much incentive to de-Americanise the supply chain," Dr Kennedy said.
"But if you are much stricter about it — you don't let anybody in China access this stuff — then there will be more incentive to de-Americanise the supply chain and that would be an outcome that would not be good for the US."
Dr Kennedy warned the US needed to carefully implement its restrictions or risk creating the exact thing it was seeking to limit.
"It would be difficult for China by itself to create a supply chain without American technology," he said.
"If the restrictions were too broad, the fear is that you could get a coalition of both Chinese chip makers and and non-Chinese suppliers that could try to create a chip-making supply chain that would not involve American technology."
That's not feasible in the near future.
"But the fear is that it could be done in the long term," Dr Kennedy said.
China sees dependency on the US as a weakness and has an ambitious target to manufacture 70 per cent of its semiconductors domestically by 2025, Samantha Hoffman, a senior analyst at the Australian Strategic Policy Institute, told the ABC.
"In the long run, I don't think US restrictions can be seen as a cause, or should be seen as backfiring if or when China succeeds," she said.
While having a long way to go in its advanced chip manufacturing, China will likely close the technological gap, Dr Hoffman said.
"China has invested billions into its semiconductor industry, and has invested a lot of energy into acquiring foreign IP from semiconductor firms," she said.
"Eventually, with or without US restrictions, it will be reducing that dependency anyway."
Concerns about advanced chips making their way into China's military were legitimate, according to Dr Hoffman.
"Military platforms are reliant on semiconductor technology," she said.
"It is also a technology that contributes to a wide range of other non-military fields, but it is difficult to regulate end-use.
"Under the conditions of 'military-civil fusion' in China, the line between 'normal' and national defence application of technology is increasingly blurred by design."
Dr Kennedy said recent reports suggested the US alliance was "struggling" and that "the Koreans in particular had concerns about it".
He said it was crucial for the US to keep its allies on board.
"There's been concern that the US was balancing these considerations fairly well up to this point, but now it seems like it might be going for a more blanket approach," Dr Kennedy said.
"And if they did go with a kind of more blanket approach [to restrictions], they risk alienating the allies."