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US chip ban will halt Chinese technology growth

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A fresh round of US restrictions on China’s access to US technology has begun. Previous penalties on Huawei almost bankrupted the Chinese smartphone and network gear manufacturer. The latest restrictions jeopardize not just whole industries, but also Beijing’s larger strategic objectives.

The most recent US sanctions include restrictions on the export of advanced chips used in artificial intelligence, as well as restrictions on the sale of chipmaking equipment to any Chinese business. More Chinese purchasers have been banned by the US.

Beijing has long desired self-sufficiency in chip manufacturing. It aspires to be the world’s foremost artificial intelligence innovation hub by 2030. It also aims for worldwide supremacy in electric vehicles. China intends to construct a centralized data fortress and network architecture. This need consistent access to the most advanced chips.

The timing is particularly unfortunate for China. Semiconductor Manufacturing International Corp, the country’s biggest chipmaker, started mass-producing 14nm chips last month. These CPUs are many generations behind those produced by major competitors such as Samsung and TSMC. Nonetheless, mass production lessens China’s need on imports. It is still forced to import the most advanced 3nm and 5nm chips.

It will now be difficult to mass produce any form of chip. In recent years, local chipmakers have swiftly caught up with the design and development components of chipmaking. However, the last step — manufacturing chips and etching precise patterns on silicon wafers — is still heavily dependent on imported gear.

SMIC employs equipment manufactured by US chip gear manufacturers Lam Research and Applied Materials. Secondary penalties would be imposed on ASML, the world’s largest provider of advanced chipmaking gear. Since July, the US is alleged to have put pressure on the Netherlands to prohibit the sale of military gear to China. It is uncertain if China will be able to continue importing chips from Taiwan’s TSMC, which employs US equipment.

On Monday, shares of China’s chipmakers, notably SMIC and Shanghai Fudan Microelectronics, plunged more than 4%, while Hua Hong Semiconductor Group sank more than 9%. Those losses are not yet significant enough to represent the possibility that the restrictions would continue more than a few months. The halting of local artificial intelligence, data centers, electric and smart vehicle industries might well prove to be the most severe technical blow dealt to China by the US.

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