Can Export Restrictions Really Halt China’s Tech Ascendancy?

Semiconductor Showdown - The Cloud Divide - The Hidden Battlefront in the Tech War with China.

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Girish Linganna
Girish Linganna
Girish Linganna is a Defence & Aerospace analyst and is the Director of ADD Engineering Components (India) Pvt Ltd, a subsidiary of ADD Engineering GmbH, Germany with manufacturing units in Russia. He is Consulting Editor Industry and Defense at Frontier India.

The United States’ limits on the transfer of advanced equipment for the fabrication of microchips to Chinese enterprises, according to a senior American official responsible for export control compliance, will slow China’s efforts to grow its semiconductor industry, according to a Bloomberg article. 

The fact that the Chinese company Huawei Technologies Co. recently released a 5G smartphone powered by an advanced 7-nanometer chip produced by Semiconductor Manufacturing International Corp. has sparked debates in Washington about the effectiveness of the US attempts to restrain China’s technological progress. However, the Undersecretary of the Bureau of Industry and Security, Alan Estevez, stated that export control will ultimately limit Beijing’s ability to produce semiconductors.

This control extends to components as well. According to Estevez, these devices will eventually fail, impeding China’s efforts to develop its semiconductor industry further.

To restrict China’s access to advanced equipment for microchip production, the United States, Japan, and the Netherlands are implementing measures restricting Beijing’s ability to acquire spare parts for its existing machines. ASML Holding NV provided China with cutting-edge equipment for deep ultraviolet lithography semiconductor fabrication this year; however, most of these shipments are scheduled to conclude by 2024.

While not explicitly declaring whether the US will maintain sanctions against Huawei and SMIC, Estevez did mention that Washington is apprehensive that China may exploit the sophisticated 7-nanometer technology for military objectives.

The US administration implemented supplementary export control measures earlier this week to limit China’s access to advanced artificial intelligence semiconductors and microchip manufacturing equipment. Washington also enacted regulations mandating licences for selling microchips to over 40 countries to prevent the products from reaching China via intermediaries.

Nonetheless, Washington must continue prohibiting Chinese firms from training their AI models using foreign cloud computing services. Estevez recognised that there is still progress to be made by his department in this regard.

As was previously reported, specific categories of graphite utilised in the manufacturing process of lithium-ion batteries for electric vehicles will be subject to export restrictions imposed by the Chinese government.

Beijing has implemented these new restrictions in response to the US action to increase oversight over the export of advanced semiconductor technologies to China.

In August, Beijing also imposed export restrictions on goods related to two rare earth metals, gallium and germanium, used in microchip production, citing national security concerns.

Restricted access to Cloud Services

US authorities have implemented more stringent limitations on providing sophisticated NVIDIA accelerators to China this month. These accelerators are used to train artificial intelligence models and high-performance computing. Officials are also considering the possibility of limiting the access of Chinese companies to the computational resources of US cloud service providers.

Accelerators, including the A800 and H800, modified iterations of the A100 and H100, have been impacted by recent US restrictions; their shipment to China was halted a year ago. Furthermore, acceleration accelerators L40/L40S and gaming video cards RTX 4090 are currently subject to limitations. Despite these measures, Chinese companies can continue utilising cloud services’ computational capabilities like Amazon Web Services and Microsoft Azure for AI model training and other high-performance duties. Network sources indicate that US authorities are contemplating the implementation of a restriction on this access. It is noteworthy that US authorities cannot block access to cloud services outside the United States.

As stated by Estevez, the authorities are considering implementing additional restrictions to prevent China from accessing American cloud services. He stated that the US has concerns regarding China’s capability to employ AI technologies for military objectives, which gives rise to this consideration. The United States considered controlling this to the greatest extent feasible, which necessitates industry consultations. The use of cloud technologies is relatively common. Artificial intelligence is currently pervasive. There is concern that in the future, artificial intelligence will presumably command and control military logistics, military radars, and an expansion of electronic warfare capabilities. Therefore, Estevez told journalists that the US desires that we maintain control over its application.

Estevez emphasised the necessity of a conscientious approach to resolving this matter, encompassing consultation with industry representatives while describing the intended restrictions. It is paramount to devise a strategy that balances regulatory oversight and promotes industrial development and innovation.

A big flaw in the US strategy is that US authorities cannot prevent Chinese enterprises from utilising services in other countries. Large cloud services are available in Europe and the Middle East; should the US impose new restrictions, Chinese enterprises may consider using these services rather than AWS and Azure. Large cloud services are available in Europe and the Middle East.


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