Has China's Huawei Beaten US Chip Controls?

The effectiveness of America's high-tech export controls are under scrutiny after Huawei released a new flagship smartphone with the help of sanctioned Chinese chipmaker SMIC.

China's state media have described the 7-nanometer processor in Huawei's Mate 60 Pro as a leap forward for Beijing in its tech war with the United States. The state-owned China Daily, an English-language broadsheet that is also widely circulated in the United States, called SMIC's Kirin 9000s chipset a "remarkable breakthrough."

Outsiders are not so sure. Industry experts have dubbed SMIC's new semiconductor a "breakout" rather than a "breakthrough," given that it still requires a set of other technologies to deploy the chip widely.

China has a long way to go before it catches up on lithography technology, Li Jinxiang, deputy secretary general of the China Electronic Production Equipment Industry Association, told a forum in August. A lithography machine is used to print complex circuits onto a semiconductor, powering the processing capability of a chip.

"Not a single chip-making production line in China has equipped a China-made lithography system—most of them are only used in academic research," Li said.

The Biden administration, which restricted China's access to advanced chipmaking tools one year ago, has warned Beijing that new curbs are forthcoming, according to Reuters.

But the success of Huawei's phone—and SMIC's new chip—has left some in the United States worrying about Beijing's ability to circumvent the restrictions. Last month, Rep. Mike Gallagher (R-WI), who chairs the House select committee on China, urged the U.S. Commerce Department to "end all technology exports" to Huawei and SMIC.

More restrictions on Huawei and SMIC are likely as leading legislators believe the Chinese chipmaker "may have violated U.S. sanctions by using U.S. equipment to produce chips for Huawei," said Chris Miller, author of Chip War: The Fight for the World's Most Critical Technology and an associate professor at Tufts University's Fletcher School of Law and Diplomacy.

SMIC's processors still fall well short of those of its Taiwanese competitor TSMC, but Beijing "heavily subsidized" the home-grown company's latest innovation, Miller told Newsweek.

"The restrictions certainly raise costs for Chinese firms, especially as they try to produce even more advanced chips. But SMIC has proven that with Chinese government subsidies, it can produce 7-nanometer smartphone chips at commercial volume," he said.

Lindsay Gorman, a senior fellow for emerging technologies at the Alliance for Securing Democracy, part of the German Marshall Fund think tank, said the Commerce Department's first task should be to close the licensing loopholes that likely led to the advances made in the Kirin 9000s chip.

"This chip likely is not as much a sign of a successfully indigenized supply chain as it is of an ability to scrounge together components to continue to drive advances," Gorman told Newsweek.

"It just doesn't seem incredibly likely that tightly controlled advanced U.S. chipmaking technology was accidentally granted a license exception. That would be a rather large policy blunder. More likely is that SMIC was able to stockpile machines before the restrictions took effect," Gorman said.

"Eventually, China will indigenize, but the calculus is that without access to very specialized equipment, that process will take long enough to allow democracies a significant lead in compute-intensive AI industries," she said.

The world's cutting-edge lithography equipment is made solely by Netherlands-based firm ASML. Its know-how will be difficult for Beijing's national champions to replicate, despite the political leadership's push for Chinese companies to develop a stronger domestic chipmaking capacity while reducing their dependence on the United States and its allies.

"Innovation is the soul of a specialized, special, and new enterprise, and we hope that you will focus on your main business, bite the bullet, practice hard, and vigorously promote scientific and technological innovation," China's Premier Li Qiang said during a visit last month to a local lithography machine manufacturer in Beijing, according to footage aired by state broadcaster CCTV.

China's leading equipment maker in the field, based in Shanghai, produces a machine capable of 90-nanometer lithography, far behind ASML and Japan's Nikon.

The most comprehensive U.S. export controls are unlikely to stop Chinese companies from exploiting new loopholes, but China's lithography gap still presents significant constraints.

Recent analysis by Bloomberg found at least four Taiwanese firms were assisting Huawei to build an "under the radar network" of chipmaking plants in southern China, with a view to reducing the phone maker's dependence on SMIC.

Wang Mei-hua, Taiwan's economics minister, said her office would examine the involvement of Taiwanese businesses aiding Huawei, although it was not immediately clear whether they had violated U.S. sanctions in the process.

"The ministry will also tell these firms to pay attention to U.S. export control measures if the equipment they use is restricted by American rules," Wang said.

Huawei didn't return a written request for comment before publication.