The Chinese Communist Party has ignited an unwinnable war. Its gamble is to collaborate with countries like Russia and Iran to disrupt the US-led global order while hoping to benefit from American technological advancements. However, due to the Party’s hostility towards the US and the West, it has not only hindered China’s path to becoming a major power but has also made the country more vulnerable.
Michael Schuman, a senior researcher at the Global China Center of the Atlantic Council and a seasoned American journalist, pointed out in an article in The Atlantic that nothing exemplifies the current predicament of the Chinese Communist Party more than advanced semiconductor chips. China needs the smallest and fastest chips to realize its dream of becoming a technology powerhouse, but it lacks the capability to produce or manufacture the highly sophisticated lithography machines needed for chip production.
The CCP relies on the US and its allies to share technology, but these countries are no longer willing to do so. The Chinese government has protested against what it views as unfair US chip bans and has attempted to make lifting the bans a condition for improving bilateral relations. The CCP’s Ministry of Foreign Affairs has accused Washington of abusing export control measures, arbitrarily blocking and obstructing Chinese companies, and politicizing technology and trade issues.
However, in reality, the US is not obliged to share its technology with other countries, especially with China evolving into a more adversarial competitor. Last October, the Biden administration imposed stricter restrictions on selling AI chips to China in response to its actions.
Gregory Allen of the Center for Strategic and International Studies (CSIS) stated that Chinese protests are ineffective as export controls are designed for this purpose and not as part of trade negotiations. The ongoing chip shortage reveals a lot about the power dynamics between the US and China and the challenges the CCP faces.
Schuman emphasized that narrowing this technological gap remains a formidable challenge for the CCP, and the Biden administration has made this task even more difficult. In 2022, the Biden administration prohibited US companies from selling the most advanced chips and chip manufacturing equipment to China without special licenses. It also persuaded allies like Japan and the Netherlands to implement their own bans and prevented foreign chip manufacturing companies using US technology, such as TSMC, from producing advanced chips for Chinese firms.
These measures have effectively isolated China’s tech industry. The US export controls target every aspect of the chip supply chain, making it increasingly difficult for Xi Jinping to overcome Biden’s policies.
The White House stressed that these chip control measures aim to safeguard US security rather than impede China’s economic development. However, the impact will have broader and more destructive repercussions on China’s tech industry and its economic future, particularly hindering the progress of large-scale language models and other AI developments in China.
As the duration of these controls lengthens, the pain for China intensifies. As domestically-produced US chips and equipment become outdated and irreplaceable, Chinese companies will struggle even more to compete with their American counterparts.
Export controls are akin to throwing a wrench into the gears of China’s chip industry, says Jimmy Goodrich, senior advisor on tech and China issues at the Rand Corporation. The longer this persists, the more challenges China (CCP) will face in keeping up with innovation. With other countries rapidly advancing in innovation, the gap between the tech industries of the US and China will widen.
To break free from US control, China believes self-reliance is the only way. A decade ago, China invested billions in a chip manufacturing initiative, but it fell short. The issue is not how many mature process chips China can produce but whether it can manufacture the most advanced chips.
Reportedly, China’s best domestically-produced lithography machines can only produce 28-nanometer chips, while the world’s most advanced machines can make 2-nanometer chips. The latest AI chip developed by US giant Nvidia is 16 times faster than Huawei’s current chips.
When Huawei released the new Mate 60 Pro smartphone last September featuring an advanced 7-nanometer Kirin chip, Schuman argues that in reality, Huawei’s Kirin chip exemplifies the effectiveness of US sanctions. Five years ago, Huawei could cooperate with TSMC to produce 5-nanometer chips, but now, TSMC has begun mass-producing 3-nanometer chips, forcing Huawei to partner with lagging Chinese foundries.
Faced with this technological disparity, the CCP’s government-led approach cannot foster technological breakthroughs. The “Big Fund” chip investment project was mired in corruption scandals. The state-controlled preferences in China disrupt the innovation vitality of the private sector and hinder its ability to compete with the well-established, lucrative ecosystem of talents in the US.
Andrew Harris, economist at Fathom Financial Consulting, points out that the CCP created a business environment that suggests “you can’t be too successful.” The government’s ability to requisition technology significantly suppresses the creativity of the private sector.
Schuman noted that communist China may never be able to match, let alone surpass, the US in chip technology. Each time a Chinese company achieves a goal, its foreign competitors are already miles ahead.
“This is a problem any latecomer must face – you’re striving to narrow the gap, but it’s only widening,” said Goodrich. “They were two generations behind ten years ago; two generations behind five years ago; and they’re still two generations behind now,” said G. Dan Hutcheson, vice president of research company TechInsights.
The CCP’s strategy of self-reliance lacks economic rationality, making China’s economic development even more challenging. Establishing a single-country chip supply chain in a highly globalized industry could cost up to $1 trillion. According to Hutcheson, manufacturing advanced chips in China costs five times as much as it does for Taiwan’s TSMC.
The repercussions of engaging in a chip war with the US show the immense financial burden the CCP must bear to regain domestically the technology it could have acquired abroad.
Hutcheson stated, “This stems from national security considerations because the CCP’s premise is that cooperation with the US goes against the interests of the Chinese nation.”
Schuman pointed out that China still needs US dollars, US capital, and the US global security system to sustain its own development. By antagonizing the US, China not only hinders its path to becoming a major power but also inadvertently weakens the country.