Great Power Chokepoints: China's Semiconductor Industry in Search of Breakthroughs

"Assaulting the fortress of key core technologies" (打好关键核心技术攻坚战): facing wave after wave of technology transfer restrictions from Washington, the Chinese semiconductor industry may see itself as being under siege. In policy language, however, the siege metaphor has a resolutely offensive connotation: this is about achieving breakthroughs, through foreign access or domestic innovation.

This research note reviews recent developments in US restrictive policies in photolithography, EDA tools and AI chips, and assesses how China is adjusting. US policies seek to remain two to three generations ahead in design and manufacturing, and limit the Chinese military’s access to advanced semiconductor technology. These goals have been consistent in the semiconductor space, predating the Trump administration. But their evolving modalities and enforcement challenges reflect changes in the industry and in the level of urgency in Washington regarding China’s catch-up. Building an export control system capable of cutting the Chinese military’s access to advanced AI chips is a current key US priority. AI chips powering supercomputers are essential to conduct complex military simulations and weapons design. There would be some irony if China’s purchase of US-designed AI chips enabled China to seriously challenge US superiority in battlefield awareness and operational planning - which the course of the war in Ukraine has once again highlighted.

The note concludes by stating that chokepoints will withstand Chinese assaults if controls are strictly enforced. The most difficult challenge for an effective chokepoint policy is intangible technology transfers through education and research cooperation, and talent recruitment. Frontal breakthroughs that would suddenly remove chokepoints seem unlikely in the medium term, but Chinese breakthroughs may happen in other innovative segments of the semiconductor industry, such as new materials and heterogeneous integration.

Despite the continuous rise of technology transfer restrictions, the geopolitics of technology leaves plenty of room for de-securitized business transactions with Chinese buyers. The proportion of EU-China "securitized" trade and investment transactions is likely to remain marginal in volume, but qualitatively, Europe has an interest in further improving its toolbox because a People’s Liberation Army with greater access to cutting-edge defense electronics increases the risk of war in East Asia.

Adjusting to the geopolitics of US-China relations and learning early lessons from the Russian invasion of Ukraine, how should Europe act to reduce the vulnerabilities of its arms industries to foreign dependence? The note underlines the importance of building a resilient microelectronics supply chain in Europe, by enhancing controls over dual-use semiconductor technology, addressing intangible technology transfers through talent recruitment, and establishing an EU-level semiconductor "trusted supply chain" for its arms industry.

Copyright: STR /AFP