There was an era when United States chip giant Intel had the lion’s share of the semiconductor industry. That began to change with innovations by Asian chip companies. Taiwan and South Korea have now moved ahead of the US’s Intel. But China is still the primary target of Washington’s campaign to maintain a competitive edge in chip technology. It’s an all-out war involving poaching, espionage and alliances.
Described as the “rice of industries”, semiconductor design and manufacturing are fuelling chip wars as advanced, industrialised countries try to maintain their edge in the technology. China’s state-owned Semiconductor Manufacturing International Corporation (SMIC) is now trying to innovate its way out of the maze of sanctions imposed by the US. SMIC is said to have started supplying 7-nanometer (nm) chips—a leap for a Chinese semiconductor company, according to the tech research firm, TechInsight.
To counter China’s advances, the US has proposed a ‘Chip 4 Alliance’, which would include South Korea, Japan and Taiwan as a collective strategic alliance of global chip powerhouses. On Tuesday, the US Senate also voted to advance a Bill that would provide $52 billion in subsidies to domestic semiconductor manufacturers and maintain its competitive edge over China.
South Korea-based Samsung started mass-producing 3-nm chips on 30 June, a significant chip design advancement. But the meeting between Chinese ambassador Xing Haiming and Samsung executive-turned-lawmaker Yang Hyang-ja, who has advocated for Seoul to join the chip alliance, suggests China is trying to dissuade South Korea from joining the alliance. Seoul itself is reluctant because it is concerned about Samsung’s ability to work with China.
“At a time when the global economy is deeply integrated, such a move by the US goes against the current. It is unpopular and will eventually fail,” said China’s deputy director of foreign affairs Zhao Lijian.
Meanwhile, New Delhi is trying to lure semiconductor companies to manufacture their key components in India. Even if Indian companies make a foray into chip manufacturing, New Delhi will need to develop institutional systems that thwart industrial espionage and make India a promising destination for chip companies and talent.
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China’s push for self-reliance
TechInsights, an analyst firm that tracks tech trends, reported that China’s state-owned SMIC is shipping a 7nm MinerVa Bitcoin mining chip. The chip innovation has been called a ‘two-generation leap’ in semiconductor manufacturing. “This serves the Chinese advanced product companies who have been restricted from access to advanced technologies available from TSMC [Taiwan Semiconductor Manufacturing Company], Samsung and other cutting-edge foundry service providers, forcing designs to older nodes, making them less competitive,” said TechInsight report about SMIC’s innovation.
But the story of China’s push to become self-reliant in semiconductor technology goes back to the Donald Trump administration.
The Trump administration had restricted Huawei’s access to semiconductors manufactured by US companies. But it soon realised that the telecom equipment firm could bypass the sanction by purchasing the chips through a Chinese semiconductor company. Later, in December 2020, the US banned its companies from providing equipment, software and designs for chips below 14 nanometers (nm) to Chinese firms without approval.
In March 2021, China added semiconductors as an independent category to its five-year plan for science and technology, aiming to become self-reliant in chip manufacturing. Since semiconductor supply chains are global and highly integrated, the US sanctions had initially impeded the mainland manufacturing base.
In 2019, China had a $29 billion semiconductor fund, which is likely to have grown.
But how did SMIC manage to innovate despite the sanctions? A potential answer can be found in talent poaching and industrial espionage.
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China-Taiwan chip wars
Taiwan’s semiconductor industry has been frustrated by mainland Chinese companies trying to poach their engineers and experts in semiconductor manufacturing. Taiwan’s Investigation Bureau launched a task force in December 2020 and is currently investigating 100 Chinese companies for allegedly poaching Taiwanese talents. Though it’s not illegal for Chinese companies to hire Taiwanese engineers, Taipei has legal restrictions prohibiting mainland investment in chip design.
An official from Taiwan’s Investigation Bureau told Reuters about a case in which a Taiwanese data analysis company, with alleged ties to a Shanghai chip firm, sent blueprints of the design to China. The investigation is still on.
TechInsight has suggested that SMIC’s 7nm chip is similar to TSMC’s 7nm chip technology, but at least two generations old from where the Taiwanese company is now.
Even if SMIC has developed 7nm chips on its own, that doesn’t mean China is now at par with Taiwan, South Korea and the US.
Bloomberg notes that SMIC’s innovation may prove the Chinese ability to innovate despite the sanctions, but that doesn’t mean the chip technology can be deployed at scale. SMIC will need to demonstrate a yield, or percentage of successful production, to demonstrate the market viability of its product.
“One chip does not make for a [good business] — it’s one thing to make a single chip, but it’s another thing to have yield and volume,” said Will Hunt, research analyst, Georgetown Center for Security and Emerging Technology.
SMIC still lags behind TSMC, Intel and Samsung, as they are at least two nodes ahead. But a Chinese company achieving the threshold of manufacturing 7nm chips despite the US sanctions and restrictions on access to software and design tells you that China is willing to catch up by any means.
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Tech race unfolds
According to TechInsight, SMIC’s 7nm innovation, though surprising, has yet to fully demonstrate the underlying process for this level of chip technology. “This chipset likely demonstrates the logic part but not the bitcell aspect,” said the report.
TSMC and Samsung have leapfrogged the innovation ladder with the latest 5-nanometer chips used in the latest Apple products.
Meanwhile, China’s semiconductor companies had entered the chip race with innovations such as 64-layer and 128-layer NAND flash memory chips made by Yangtze Memory Technologies Co (YMTC).
The Joe Biden administration is investigating China’s state-owned YMTC for violating the US sanctions and providing Huawei with restricted chips for its products. Washington hasn’t given up on reducing China’s access to proprietary chip design.
The initial analysis of the SMIC’s 7nm chip suggests that the Chinese company copied TSMC’s design, which may have been acquired through classic industrial espionage that Beijing is known to practise.
China has managed to leap into semiconductor design, but it has some way to go in creating an innovative ecosystem in chips and becoming self-reliant.
(Edited by Srinjoy Dey)