U.S. Ban on Huawei Seen Widening China Chip War
An imminent ban on U.S. exports to Huawei is seen as the first volley in a new wave of restrictions that will impair China’s semiconductor, AI and quantum computing industries—all critical for tech dominance in military and commercial realms.
The administration of U.S. President Joe Biden has stopped licensing U.S. companies to export to Huawei as Washington aims for a total ban on sales of U.S. technology to the Chinese telecom equipment giant, the Financial Times reported this week, citing people inside the White House familiar with the plan.
China’s largest chipmakers like Semiconductor Manufacturing International Corp. (SMIC) and Yangtze Memory Technologies Corp. (YMTC), and even smaller domestic rivals like Hua Hong Semiconductor, will face more impediments to their growth from the new restrictions, sources told EE Times.
“The new end-use controls are structured to automatically catch other Chinese companies, say Hua Hong, that want to move up the value-added/technology scale and work at 14 nm,” said Paul Triolo, a China tech expert at Washington D.C. business consultancy Albright Stonebridge. “The whole system is set up to automatically keep China behind at a fixed technology level, per [U.S. National Security Advisor] Jake Sullivan’s comments in October that the U.S. would no longer use a ‘sliding scale’ in attempting to keep U.S. companies leading in their respective sectors.”
The White House is considering a plan to ban U.S. business from entire segments of China’s tech industry, Politico reported on Jan. 27, citing new House Foreign Affairs Committee Chairman Michael McCaul, as well as four congressional and former national security officials.
EE Times asked Keith Krach, a former undersecretary at the Department of Commerce under the Trump Administration and one of the architects of the CHIPS and Science Act, for his perspective.
“SMIC and YMTC are among dozens of Chinese companies, along with thousands of their subsidiaries, that pose serious national security threats to the United States because they are building semiconductors for their military,” he said. “They certainly warrant further restrictions.”
“Three companies along with their subsidiaries that should be prioritized are Alibaba, Baidu and Tencent,” he added. “These are the most important companies to China’s military AI program, and they are only second to Huawei in enabling their surveillance state.”
Focus on Huawei
For now, the U.S. focus is on Huawei, founded in 1987 by Ren Zhengfei, a former officer in China’s People’s Liberation Army that’s now one of the world’s largest telecommunications companies. In 2020, Huawei became the world’s largest smartphone maker just as the U.S. government cut off the supply of advanced chips from TSMC to Huawei.
“Huawei is the backbone of the Chinese government’s surveillance state, a tool of its military machine, and complicit in the genocide of Uyghurs in Xinjiang,” Krach said. “The company is on the Commerce Department’s ‘entity list’ and the Pentagon’s list of communist Chinese military companies. Communist Party ‘cells’ are embedded in its leadership structure. Huawei has stolen intellectual property, obstructed justice, lied to banks and the U.S. government.”
After its smartphone business plummeted, Huawei, via its Hubble Investment arm, took stakes in China’s nascent semiconductor ecosystem to rebuild its supply chain and shift away from smartphones. The company is buying more processors from Chinese chipmakers like SMIC and is expanding into new businesses like datacenters and cloud services. That’s become a red flag for the U.S., Triolo said.
“U.S. officials are likely concerned that Huawei could eventually be successful in helping Chinese firms move up the value-added chain and help China overcome U.S. export controls on semiconductor manufacturing tools,” he added.
Huawei’s Hubble Technology Investment Co. has backed nearly 100 companies since its founding, mostly in the chip supply chain.
“I would expect more companies [that are] part of the Huawei/Hubble effort to come under controls, but again here, the October 7 controls also target inputs to semiconductor manufacturing equipment already,” Triolo said.
Besides Chinese chip suppliers, U.S.-based Intel and Qualcomm still sell chips to Huawei that are not blocked by earlier restrictions, according to the Financial Times report. An investor in global technology companies for an Asian sovereign wealth fund said the U.S. government is struggling to deal with the “inconvenient truth” that some Chinese companies work harder and smarter and will continue to survive. He spoke with EE Times on the condition of anonymity.
“I know Huawei and many of its suppliers will divide, regroup and pivot successfully,” he said. “Should they succeed, it says a lot about this role-model tech company and its culture, as well as something about the U.S. government.”
Series of sanctions
The Biden administration has implemented a series of sanctions on the Chinese tech industry, the largest of which was announced by the U.S. Department of Commerce on Oct. 7.
“The one-at-a-time restrictions reflect, at one level, the complexity of the sector, changing notions of what the strategy should be within the U.S. government inter-agency, and the nature of the tools involved, such as export controls, which were not designed for maintaining U.S. technology dominance in a particular technology sector,” Triolo said.
The U.S. is straining ties with allied nations in the tech industry like Japan and the Netherlands and can no longer rely on old international pacts to rein in the export of technology to China, according to Triolo.
For the strategy to be effective, “the U.S. can no longer work through the Wassenaar Agreement but must convince or twist the arms of allies, such as Japan and the Netherlands, in terms of end-use controls,” he added.
Japan’s Tokyo Electron and the Netherlands’ ASML are key suppliers of semiconductor tools to the global chip industry. Japan and the Netherlands reached an undisclosed agreement with the U.S. on export controls to China, Bloomberg reported in late January.
The U.S. will attempt to implement more controls around AI and quantum computing, including restrictions on outbound investment to China, Triolo said.
He warned of unintended consequences.
“As we have seen on major scale with semiconductor controls, including contributions to the global semiconductor shortage from Huawei’s 2019 ‘entity’ listing, there will surely be unintended consequences for controls that are not well thought out,” he said. “Taking into account the global nature of innovation in sectors like semiconductors and AI, any new controls could produce major collateral damage, including to U.S. companies that are leaders in key technology sectors.”