US chip controls threaten China’s technology ambitions

BEIJING (AP):

FURIOUS AT US efforts that cut off access to technology to make advanced computer chips, China’s leaders appear to be struggling to figure out how to retaliate without hurting their own ambitions in telecoms, artificial intelligence and other industries.

President Xi Jinping’s government sees the chips that are used in everything from phones to kitchen appliances to fighter jets as crucial assets in its strategic rivalry with Washington and efforts to gain wealth and global influence. Chips are the centre of a “technology war”, a Chinese scientist wrote in an official journal in February.

China has its own chip foundries, but they supply only low-end processors used in autos and appliances. The US government, starting under then-President Donald Trump, is cutting off access to a growing array of tools to make chips for computer servers, AI and other advanced applications. Japan and the Netherlands have joined in limiting access to technology they say might be used to make weapons.

Xi, in unusually pointed language, accused Washington in March of trying to block China’s development with a campaign of “containment and suppression”. He called on the public to “dare to fight”.

Despite that, Beijing has been slow to retaliate against US companies, possibly to avoid disrupting Chinese industries that assemble most of the world’s smartphones, tablet computers and other consumer electronics. They import more than $300 billion worth of foreign chips every year.

The ruling Communist Party is throwing billions of dollars at trying to accelerate chip development and reduce the need for foreign technology.

China’s loudest complaint: It is blocked from buying a machine available only from a Dutch company, ASML, that uses ultraviolet light to etch circuits into silicon chips on a scale measured in nanometres, or billionths of a metre. Without that, Chinese efforts to make transistors faster and more efficient by packing them more closely together on fingernail-size slivers of silicon are stalled.

Making processor chips requires some 1,500 steps and technologies owned by US, European, Japanese and other suppliers.

“China won’t swallow everything. If damage occurs, we must take action to protect ourselves,” the Chinese ambassador to the Netherlands, Tan Jian, told the Dutch newspaper Financieele Dagblad.

“I’m not going to speculate on what that might be,” Tan said. “It won’t just be harsh words.”

The conflict has prompted warnings the world might decouple, or split into separate spheres with incompatible technology standards that mean computers, smartphones and other products from one region wouldn’t work in others. That would raise costs and might slow innovation.

“The bifurcation in technological and economic systems is deepening,” Prime Minister Lee Hsien Loong of Singapore said at an economic forum in China last month. “This will impose a huge economic cost.”

Chinese industries will “hit a wall” in 2025 or 2026 if they can’t get next generation chips or the tools to make their own, said Handel Jones, a tech industry consultant.

China “will start falling behind significantly”, said Jones, CEO of International Business Strategies.

Beijing might have leverage, though, as the biggest source of batteries for electric vehicles, Jones said.

Chinese battery giant CATL supplies US and Europe automakers. Ford Motor Co. plans to use CATL technology in a $3.5-billion battery factory in Michigan.

“China will strike back,” Jones said. “What the public might see is China not giving the US batteries for EVs.”