The New Cold War

BEIJING, April 15 (Reuters) - China's top diplomat Wang Yi "hopes and believes" Germany will support China's "peaceful reunification" with Taiwan, the Chinese foreign ministry said in a statement on Saturday.

Wang made the remarks at a meeting with German Foreign Minister Annalena Baerbock, who is visiting China until Saturday, adding that China once supported Germany's reunification.

"To maintain stability in the Taiwan Strait, it is necessary to firmly oppose separatist activities related to 'Taiwan independence'," Wang said, adding that Taiwan's "return to China" was an important component of the post-World War II international order.

On Friday, Baerbock said any attempt by China to control Taiwan would be unacceptable and would have serious repercussions for Europe. European Union foreign policy chief Josep Borrell echoed her remarks.

America Has Dictated Its Economic Peace Terms to China
By refusing negotiation over China’s rise, the United States might be making conflict inevitable.

Adam Tooze
By Adam Tooze, a columnist at Foreign Policy and director of the European Institute at Columbia University.

APRIL 24, 2023, 11:21 AM

How far will mounting tension with China be translated into the economic policy of the United States? After a rash of sanctions and overtly discriminatory legislation, with action on U.S. investment in China pending, and with talk of war increasingly commonplace in the United States, the Biden administration knows that it needs to clarify its economic relations with the country that is the largest U.S. trading partner outside North America.

In the wake of this month’s International Monetary Fund and World Bank spring meetings, Treasury Secretary Janet Yellen has made her first major statement on economic relations with China since 2021. Judged by the tone, her message is intended to clarify and calm the waters of speculation and debate about motives and intentions. In the current situation, however, it is far from clear whether clarity actually contributes to calm.

The scenario that Yellen rejects is that of the Thucydides trap, but her reasons for doing so are telling. The idea that “conflict between the United States and China” is “increasingly inevitable” is, she insists, based on a false premise. That outlook was “driven by fears, shared by some Americans, that the United States was in decline. And that China would imminently leapfrog us as the world’s top economic power, leading to a clash between nations.” America would seek military confrontation to forestall the unfavorable shift in the power balance attendant on China’s phenomenal economic growth. This makes no sense, Yellen reassures us, because the American economy, thanks to its foundational institutions of freedom, its culture of innovation, and the wise governance of the Biden administration is in rude health.

“The United States remains the most dynamic and prosperous economy in the world.” So, Yellen insists, America has no reason to seek to “stifle China’s economic and technological modernization” or to pursue a deep decoupling. America’s economic power, the Treasury secretary goes on, “is amplified” by its relationships with “close friends and partners in every region of the world, including the Indo-Pacific.” America thus has “no reason to fear healthy economic competition with any country.” And then Yellen delivers the punchline: “China’s economic growth need not be incompatible with U.S. economic leadership.”

It is worth lingering over the implication here. Conflict is not inevitable because America is doing well. That in turn means that China can grow without threatening American economic leadership. But what if that were not the case? Yellen does not spell out the implication. Yet in that eventuality, where Yellen leaves little room for doubt, all bets would be off. Even now, even when the Biden administration professes to be confident about America’s economic prospects, Yellen insists: “As in all of our foreign relations, national security is of paramount importance in our relationship with China.”

At one level, this is obvious. No public official will ever say anything else. Security is the basic function of states. But everything depends on the scope of your vision of national security and the level of trust. And if you have to state the priority of national security in foreign relations out loud, you know you have a problem.

For Yellen, it is obvious that America is entitled to define its national security at a planetary level. She claims, for instance, that amongst America’s “most pressing national security concerns” is the defense of Ukraine against Russian aggression. Anyone who chooses to ignore America’s sanctions against Russia and falls within its jurisdiction will face serious consequences. Likewise, since America has decided that it wishes to deny certain technologies to the Chinese military, it will impose sanctions and trade limits accordingly.

So a strong and self-confident America has no reason to stand in the way of China’s economic and technological modernization except in every area that America’s national security establishment, the most gigantic in the world, defines as being of essential national interest. For this to be anything other than hypocrisy, you have to imagine that we live in a goldilocks world in which the technology, industrial capacity, and trade that are relevant to national security are incidental to economic and technological modernization more broadly speaking.

Yellen pays lip service to that goldilocks vision, by insisting that U.S. measures against China will be tightly targeted. But, as everyone knows, those targeted measures have so far included massive efforts to hobble the world leader in 5G technology, Huawei, sanctions against the entire chip supply chain, and the inclusion of most major research universities in China on America’s entities list that strictly limits trade.

Meanwhile, to add to the perplexity, whilst Yellen insists that national security sanctions tell us nothing about America’s intentions towards Chinese growth, she trumpets legislation passed on the Biden administration’s watch, notably the Chips Act and the Inflation Reduction Act, which feature strong anti-Chinese elements, as contributing significantly to America’s own future prosperity.

The upshot is that America welcomes China’s economic modernization and will refuse the lure of the Thucydides trap so long as China’s development proceeds along lines that do not infringe on American leadership and national security. And America’s attitude will be all the more benign the more successful it is in pursuing its own national prosperity and preeminence precisely in those areas.

It is telling that what seems to be intended as a reasonable and accommodating statement is, in fact, so jarring. China must accept America’s demarcation of the status quo. If it does not respect the boundaries drawn for it by Washington between harmless prosperity and historically consequential technological development, then it should expect to face massive sanctions.

One must be grateful to Yellen for stating the point so clearly. But how on earth does Washington expect Beijing to respond? China is not Japan or Germany after 1945. In relation to the United States, if the question of “leadership” is posed, parity is the least that Beijing must aim for. The status quo that Treasury Secretary Yellen takes for granted clearly cannot be legitimate in the long run. As Beijing has said, it aspires to a fundamental reordering of world affairs such that American talk of leadership is retired forever. Nor is China the only major Asian power to share this view. India’s understanding is no different.

In Washington, this meets with blank incomprehension or even a sense of wounded pride. Does China not understand that it owes its growth to an American-led order? To rebel against that order, Yellen says quite openly, is not in China’s interest. Yellen is right that conflict between China and the United States is not inevitable. It does depend on the moves that both sides make.

But it is hard to see how her vision, in which the United States arrogates to itself the right to define which trajectory of Chinese economic growth is and is not acceptable, can possibly be a basis for peace. If the United States is still interested in global economic and political order, and it surely should be, it must be open to negotiate peaceful change. Otherwise, it is simply asking for a fight.

Talijanska je vlada prošli tjedan morala pokrenuti zaštitu nacionalnog interesa kako bi spriječila Sinochem da preuzme kontrolu nad tvrtkom Pirelli i dokopa se osjetljive tehnologije. Još jedan u nizu razloga zbog kojih je EU u utorak predstavila "Zajedničko priopćenje o europskoj strategiji ekonomske sigurnosti".
Dokument koji bi trebao, u situaciji kada su oružjem postali prije svega energenti i sofisticirana tehnologija, ali i drugi segmenti ekonomije (povratak hrane u tu skupinu, primjerice), jamčiti da EU može zaštititi interese stanovništva. O predloženom će raspravljati Vijeće EU na sastanku 29. i 30. lipnja, a cilj je, u dijalogu s Europskim parlamentom i članicama, kreirati "sveobuhvatan pristup zaštiti ekonomske sigurnosti Unije". Privatni sektor ima zajamčeno mjesto u procesu.
Iako se u tekstu na 14 stranica Rusija spominje tri puta, tekst je primarno usmjeren protiv djelovanja Narodne Republike Kine koja nije spomenuta već je zastrta sintagmom "akteri koji bi mogli koristiti [ekonomiju] radi potkopavanja međunarodnog mira i sigurnosti". NR Kina se u više navrata pokazala nekorektnim trgovinskim partnerom jer zlorabi otvorenost europskog tržišta kreirajući istodobno prepreke europskim tvrtkama na svom tržištu.

NATO’s New Focus on China Creates Internal Tension About Mission Creep
Leaders of four Asia-Pacific nations are set to attend alliance’s summit for second straight year

July 8, 2023 12:01 am ET

TOKYO—NATO was created to deter Soviet tanks and missiles in Europe. Now it is also in the business of deterring China’s global ambitions, spurring concern among some members about mission creep and accusations by Beijing of inciting confrontation.

Leaders from Australia, New Zealand, South Korea and Japan—known as the Asia-Pacific Four—will attend the annual North Atlantic Treaty Organization summit meeting for the second successive year. On the agenda at the summit, set for next week in Lithuania, is increased cooperation in areas such as maritime and cybersecurity, with challenges from China front of mind.

NATO leaders say China’s moves to assert control in the South China Sea, a transit point for trillions of dollars of global trade each year, as well as its growing nuclear arsenal and cyberwarfare capabilities are now as much of a concern for Europe and North America as for Asian nations.
“NATO is and will remain a regional alliance of North America and Europe,” NATO Secretary-General Jens Stoltenberg told The Wall Street Journal at NATO headquarters in Brussels. “But this region faces global threats and we have to address them together with our global partners.”

NATO’s concern about China has grown quickly. The organization first expressed worries in a leaders’ statement in late 2019 and last year included a reference in its main guiding document, known as the Strategic Concept, for the first time.

China’s “stated ambitions and coercive policies challenge our interests, security and values,” NATO said, citing Beijing’s military buildup and its efforts to use economic coercion, as well as its strategic partnership with Russia.

Before the invasion of Ukraine, Russia and China said that their relationship would have “no limits” and that they opposed any further enlargement of NATO.

Part of NATO’s response has been to build closer ties with those that share similar concerns about China.  

Last October, around a dozen NATO military officials visited Taiwan to talk with military officials there about China’s military capabilities and its just-ended Communist Party Congress, according to people familiar with the meetings.

A few months earlier, before the national leaders of the Asia-Pacific Four attended the NATO summit in Madrid in June, the four countries’ defense chiefs joined a meeting of the NATO Military Committee, the top advisory board to NATO commanders.

While worries about China are widespread among NATO countries, there are also concerns about an expanded role, particularly as the war in Ukraine erodes members’ military resources.  

French President Emmanuel Macron has been the most vocal skeptic of an Asian role for NATO, saying at a security conference in May that enlarging its “spectrum and the geography” would be a big mistake.

Over the past few years, the U.K. and other NATO countries have sent warships for exercises in the Asia-Pacific region, but diplomats say some NATO members are wary of both losing focus on Russia and raising tensions with China.

Differences inside the bloc came to the fore this year when French officials objected to establishing a NATO liaison office in Tokyo. The proposal—also highlighted by Beijing as evidence that NATO aims to block China’s development—remains on hold.

“We have seen NATO bent on going east into this region, interfering in regional affairs and inciting bloc confrontation,” Chinese Foreign Ministry spokesman Wang Wenbin said in June.

Zhao Xiaozhuo, a senior colonel in China’s People’s Liberation Army, said in a recent interview that Beijing is wary of a linkup between NATO and U.S. security partners in Asia, such as Japan and South Korea, into a broad military alliance.

“The survival of NATO for so many years shows that it needs enemies,” he said. “Russia was the enemy and now China is a target.”

Security analysts say the limited naval capacity of most European NATO countries means they are unlikely to build up sea power in the Asia-Pacific region, an area dominated by oceans. The U.K. has committed to sending an aircraft carrier and supporting ships to the region in 2025, but no other plans have been announced.

But even the occasional presence of NATO warships boosts deterrence by making China consider whether any aggression might be met by a NATO response, said Brad Glosserman, a senior adviser at the Pacific Forum, a Hawaii-based think tank.

Moves by NATO and the Asia-Pacific Four to take part in exercises together will also help prepare for future crises, said Yoko Iwama, a professor of international relations at the National Graduate Institute for Policy Studies in Tokyo. The U.K. and Japan agreed earlier this year to allow their militaries to conduct more joint training.

Iwama said it makes sense for NATO to engage with Asia-Pacific allies because conflicts in the region would hit Europe’s prosperity.

“We’re not asking French soldiers to fight in the Taiwan Strait, but they have their national interests at stake here,” she said.

As they seek more engagement from NATO, the Asia-Pacific Four have shown more willingness to contribute to European security through support for Ukraine. They are providing mostly nonlethal equipment, but South Korea has worked around a longstanding ban on weapons exports by sending the U.S. artillery shells that will be routed to Ukraine. Japan and the U.S. have held talks about a similar arrangement.

NATO has also benefited from exchanges with Asia-Pacific nations over challenges from China such as disinformation campaigns, said Julianne Smith, the U.S. permanent representative to NATO. In turn, NATO members have shared their experiences with Russia.

“It’s been a remarkable moment of learning for both sides,” Smith said.

Still, officials in the Asia-Pacific Four say they aren’t seeking membership in NATO. Under Article Five of the NATO Treaty, members commit to come to the defense of any member that is attacked in Europe or North America.

“There is no plan—no intention—to become a global military alliance with Article Five covering countries beyond North America and Europe,” said Stoltenberg, the NATO chief.

паће wrote:Па оно мало крену да шире дефиницију европејства... ако могу на песму Евровизије да приме Израел и кога још, ускоро могу и нинџе, озије и кивије.

The progress China has made in renewable energy just THIS YEAR makes the entire rest of the world look like it's standing still.

I wrote in December that to call China the "world leader in renewable energy" was a colossal understatement.

That’s even more true today.

Thread 🧵 pic.twitter.com/9OONtOtIjz

— Kyle (@KyleTrainEmoji) July 15, 2023

‘An Act of War’: Inside America’s Silicon Blockade Against China - The New York Times (nytimes.com)

‘An Act of War’: Inside America’s Silicon Blockade Against China
The Biden administration thinks it can preserve America’s technological primacy by cutting China off from advanced computer chips. Could the plan backfire?
By Alex W. Palmer
• July 12, 2023

Last October, the United States Bureau of Industry and Security issued a document that — underneath its 139 pages of dense bureaucratic jargon and minute technical detail — amounted to a declaration of economic war on China. The magnitude of the act was made all the more remarkable by the relative obscurity of its source. One of 13 bureaus within the Department of Commerce, the smallest federal department by funding, B.I.S. is tiny: Its budget for 2022 was just over $140 million, about one-eighth the cost of a single Patriot air-defense missile battery. The bureau employs approximately 350 agents and officers, who collectively monitor trillions of dollars’ worth of transactions taking place all around the world.

During the height of the Cold War, when export controls to the Soviet bloc were at their strictest, B.I.S. was a critical hub in the Western defenses, processing up to 100,000 export licenses annually. During the relative peace and stability of the 1990s, the bureau lost some of its raison d’être — as well as staff and funding — and licenses shriveled to roughly 10,000 per year. Today, the number is 40,000 and climbing. With a sprawling trade blacklist known as the entity list (currently 662 pages and counting), numerous pre-existing multilateral export-control agreements and ongoing actions against Russia and China, B.I.S. is busier than ever. “We spend 100 percent of our time on Russia sanctions, another 100 percent on China and the other 100 percent on everything else,” says Matt Borman, the deputy assistant secretary of commerce for export administration.

In recent years, semiconductor chips have become central to the bureau’s work. Chips are the lifeblood of the modern economy, and the brains of every electronic device and system, from iPhones to toasters, data centers to credit cards. A new car might have more than a thousand chips, each one managing a different facet of the vehicle’s operation. Semiconductors are also the driving force behind the innovations poised to revolutionize life over the next century, like quantum computing and artificial intelligence. OpenAI’s ChatGPT, for example, was reportedly trained on 10,000 of the most advanced chips currently available.

With the Oct. 7 export controls, the United States government announced its intent to cripple China’s ability to produce, or even purchase, the highest-end chips. The logic of the measure was straightforward: Advanced chips, and the supercomputers and A.I. systems they power, enable the production of new weapons and surveillance apparatuses. In their reach and meaning, however, the measures could hardly have been more sweeping, taking aim at a target far broader than the Chinese security state. “The key here is to understand that the U.S. wanted to impact China’s A.I. industry,” says Gregory C. Allen, director of the Wadhwani Center for A.I. and Advanced Technologies at the Center for Strategic and International Studies in Washington. “The semiconductor stuff is the means to that end.”

Though delivered in the unassuming form of updated export rules, the Oct. 7 controls essentially seek to eradicate, root and branch, China’s entire ecosystem of advanced technology. “The new policy embodied in Oct. 7 is: Not only are we not going to allow China to progress any further technologically, we are going to actively reverse their current state of the art,” Allen says. C.J. Muse, a senior semiconductor analyst at Evercore ISI, put it this way: “If you’d told me about these rules five years ago, I would’ve told you that’s an act of war — we’d have to be at war.”

If the controls are successful, they could handicap China for a generation; if they fail, they may backfire spectacularly, hastening the very future the United States is trying desperately to avoid. The outcome will likely shape U.S.-China competition, and the future of the global order, for decades to come. “There are two dates that will echo in history from 2022,” Allen says. “The first is Feb. 24, when Russia invaded Ukraine; and the second is Oct. 7.”

Despite the immense intricacy of their design, semiconductors are, in a sense, quite simple: tiny pieces of silicon carved with arrays of circuits. The circuits flip on and off based on the activity of switches called transistors. When a circuit is on, it produces a one; off, a zero. The first chips, invented in the late 1950s, held only a handful of transistors. Today the primary semiconductor in a new smartphone has between 10 and 20 billion transistors, each about the size of a virus, carved like a layer cake into the structure of the silicon.
The rate of progress over the last six decades has been famously described by Moore’s Law, which observed that the number of transistors that can be fit on a chip has roughly doubled every two years. Chris Miller, author of the book “Chip War” and an associate professor of international history at the Fletcher School at Tufts University, likes to note that if airplanes had improved at the same rate as chips, they’d now be flying at several times the speed of light. No technology in the history of human civilization has ever matched the breathtaking ascent of computing power.

Semiconductor-manufacturing plants, known as fabs, are the most expensive factories in the world, conducting the most complex manufacturing ever accomplished, at a scale of production never before achieved with any other device. The wider chip industry, meanwhile, is a web of mutual interdependence, spread all over the planet in highly specialized regions and companies, its feats made possible by supply chains of exceptional length and complexity — a poster child, in other words, for globalization. “It’s hard to imagine how the capabilities they’ve reached would be possible without access to the smartest minds in the world all working together,” Miller says. And yet it is this same interconnectedness that makes the industry vulnerable to regulations like those the Biden administration is pursuing.

Only a small handful of companies can compete at the cutting edge, where breakthroughs cost billions of dollars and decades of research. The result is an industry structured as a series of choke points. The best-known example is the extreme ultraviolet (EUV) lithography machine made by ASML, a Dutch manufacturing conglomerate, which is used to print out the layers of a chip. In 1997, ASML hired Jos Benschop, a young engineer with a Ph.D. in physics, to spearhead the creation of a new system, one that would help ASML’s customers in the semiconductor industry print smaller, faster and denser chips than ever before. It took four years to achieve the proof of concept necessary to even justify assigning a small team to the task, and then another five years for the team to build a prototype machine. In December 2010, at a research facility in South Korea, an updated prototype, a TWINSCAN NXE:3100, finally had its first successful test run. It would be nearly another decade before the first EUV-enabled products would go to market.

The newest version of the machine can craft structures as small as 10 nanometers; a human red blood cell, by comparison, is about 7,000 nanometers across. It uses a laser to create plasma 40 times hotter than the surface of the sun, which emits extreme ultraviolet light — invisible to the human eye — that is refracted onto a silicon chip by a series of mirrors. The laser is sourced from a German company and has 457,329 pieces; an entire EUV has more than 100,000 components of similar intricacy.

An EUV is just one part of the process: A cutting-edge fab can include more than 500 machines and 1,000 steps. And yet an EUV alone is a nearly miraculous human achievement, capable of working at scales and precisions that are difficult to fathom. “I truly believe our machine is the most complex thing mankind has ever produced,” says Benschop, now ASML’s corporate vice president of technology. Today, more than a decade since the TWINSCAN’s first test run, no other company has been able to recreate ASML’s achievement.

By squeezing on the industry’s natural choke points, the Biden administration aims to block China from the future of chip technology. The effects will go far beyond cutting into Chinese military advancements, threatening the country’s economic growth and scientific leadership too. “We said there are key tech areas that China should not advance in,” says Emily Kilcrease, a senior fellow at the Center for a New American Security and a former U.S. trade official. “And those happen to be the areas that will power future economic growth and development.” Today, scientific advances are often made by running simulations and analyzing huge amounts of data, rather than through trial-and-error experiments. Simulations are used to discover new lifesaving drugs, to model the future of climate change and to explore the behavior of colliding galaxies — as well as the physics of hypersonic missiles and nuclear explosions.

“The person with the best supercomputer can do the best science,” Jack Dongarra, founding director of the Innovative Computing Laboratory at the University of Tennessee, told me. Dongarra runs a program called the TOP500, which offers a biannual ranking of the fastest supercomputers in the world. As of June, China claims 134 spots, compared with 150 for the U.S. But the picture is incomplete: Around 2020, China’s submissions plummeted in a way that suggested to Dongarra a desire to avoid attracting unwanted attention. Rumors of new supercomputers leak out in scientific papers and research announcements, leaving observers to guess at the true state of the competition — and the size of China’s presumed lead. “It’s striking because in 2001 China had no computers on the list,” Dongarra says. “Now they’ve grown to the point that they dominate it.”

Yet beneath China’s strength is a crucial vulnerability: Nearly all the chips that power the country’s most advanced projects and institutions are inexorably tied to U.S. technology. “The entire industry can only function with U.S. inputs,” Miller says. “In every facility that’s remotely close to the cutting edge, there’s U.S. tools, U.S. design software and U.S. intellectual property throughout the process.” Despite decades of effort by the Chinese government, and tens of billions of dollars spent on “indigenous innovation,” the problem remains acute. In 2020, China’s domestic chip producers supplied just 15.9 percent of the country’s overall demand. As recently as April, China spent more money importing semiconductors than it did oil.

America fully grasped its power over the global semiconductor market in 2019, when the Trump administration added Huawei, a major Chinese telecommunications maker, to the entity list. Though the listing was ostensibly punishment for a criminal violation — Huawei had been caught selling sanctioned materials to Iran — the strategic benefits became immediately obvious. Without access to U.S. semiconductors, software and other essential supplies, Huawei, the largest telecommunications-equipment producer in the world, was left struggling to survive. “The Huawei sanctions immediately pulled back the curtain,” says Matt Sheehan, a fellow at the Carnegie Endowment for International Peace who studies China’s tech ecosystem. “Chinese tech giants are running on chips that are made in America or have deep American components.”

Export-control law had long been seen as a dusty, arcane backwater, far removed from the actual exercise of American power. But after Huawei, the United States discovered that its primacy in the semiconductor supply chain was a rich source of untapped leverage. Three firms, all located in the U.S., dominate the market for chip-design software, which is used to arrange the billions of transistors that fit on a new chip. The market for advanced chip-manufacturing tools is similarly concentrated, with a handful of companies able to claim effective monopolies over essential machines or processes — and nearly all of these companies are American or dependent on American components. At every step, the supply chain runs through the U.S., U.S. treaty allies or Taiwan, all of them operating in a U.S.-dominated ecosystem. “We stumbled into it,” Sheehan says. “We started using these weapons before we really knew how to use them.”

In May 2020, the Trump administration tightened the screws further, this time by making Huawei subject to a formerly obscure provision of export-control law called the foreign direct product rule. Under the F.D.P.R., foreign-made items are subject to American controls if they were produced using American technology or software. It is a sweeping assertion of extraterritorial power: Even if an item is made and shipped outside the United States, never once crossing the country’s borders, and contains no U.S.-origin components or technology in the final product, it can still be considered an American good.

For Huawei, the application of the F.D.P.R. meant the company was virtually cut off from semiconductors. “That rule subjected all semiconductors on the planet to American law, because every foundry on the planet uses U.S. tools at least in part,” Kevin Wolf, a former assistant secretary of commerce for export administration at the B.I.S., says. “If you have one U.S. tool and 100 non-American tools in your fab, that taints any wafer moving across the line.”

In 2020, according to the market-analysis firm Canalys, Huawei was the largest smartphone seller in the world, with an 18 percent market share, besting even Apple and Samsung. Huawei’s revenues plunged by nearly a third in 2021, and the company sold off one of its smartphone brands in a bid to stay afloat. By 2022, its share had fallen to 2 percent.

The Oct. 7 rules represented the sum of everything U.S. policymakers had learned about semiconductors, supply chains and American power. The measures were announced as an “interim final rule,” meaning they took effect immediately — a direct reaction to a perceived weakness in the Huawei controls. “There was a lot of notice before the Huawei rule came into effect, and they spent the time beforehand stockpiling,” says Peter Harrell, a former senior director for international economics at the National Security Council who was involved in crafting the Oct. 7 rules. “That was a tactical lesson — that you need the element of surprise.” More important, the United States had learned that hobbling one company, however large, simply created room for new competitors to step in. A more comprehensive approach would be needed. “The Trump administration went after companies,” says Allen, the CSIS expert. “The Biden administration is going after industries.”

The rules went deeper into the semiconductor supply chain than any previous measure. China was cut off not just from importing the most advanced chips, but also from acquiring the inputs to develop its own advanced semiconductors and supercomputers, and even from the U.S.-origin components, technology and software that could be used to produce semiconductor-manufacturing equipment to eventually build their own fabs to make their own chips. “It was an ‘all of the above’ strategy,” Wolf, the former B.I.S. official, says. Some elements were entirely novel, like a restriction on the activity of any “U.S. persons” — companies and citizens, as well as green-card holders and permanent residents. After Oct. 7, U.S. persons are no longer allowed to engage in any activity that supports the production of advanced semiconductors in China, whether by maintaining or repairing equipment in a Chinese fab, offering advice or even authorizing deliveries to a Chinese semiconductor manufacturer.

The decision to act unilaterally was a diplomatic gamble. Though the United States controls a number of key choke points in the global supply chain, other countries — particularly Taiwan, Japan and the Netherlands — hold dominance over similarly crucial sectors of the manufacturing process. Had those countries continued to sell to China as before, it would have rendered the Oct. 7 controls nearly useless. But in late January, the Biden administration reached an agreement with Japan and the Netherlands, under which they would implement similar controls on semiconductors or semiconductor-manufacturing equipment.

Taiwan had already signed on months earlier, as soon as the controls were announced. The island is a chip-manufacturing juggernaut: It produces almost two-thirds of the world’s semiconductors annually, and over 90 percent of the most advanced ones. Much of that output is thanks to a single firm, TSMC, the most valuable public company in all of Asia and the most advanced semiconductor manufacturer in the world. By itself, TSMC accounts for about a third of the total global market for contract chip fabrication. (OPEC, by comparison, controls about 40 percent of the global oil market.)

Taiwan’s central role in global chip production makes it indispensable to the United States. If the island’s fabs were to be captured by China, or knocked offline during an invasion, the costs to the global economy would be catastrophic. Taiwan’s chips stranglehold is sometimes called its “silicon shield” — the island’s most formidable deterrent against a Chinese attack, and its best assurance of American help in the event of a Chinese invasion.

But the partnership between the U.S. and Taiwan is an unequal one. Though Taiwan is unmatched in chip manufacturing, it captures less than 10 percent of the global market by revenue. The bulk of sales — 40 percent in 2022 — go to the American firms that export their chip manufacturing to Taiwan, in much the same way that American clothes designers profit from the sale of items that are actually sewn overseas. Strategically, American policymakers see the U.S.’s dependence on Taiwan as an unacceptable risk. They have pushed for TSMC to build more fabs in the U.S., as part of a broader strategy to locate more semiconductor manufacturing closer to American shores.

Taiwan has no choice but to comply, for fear of upsetting its most powerful ally and largest arms supplier; but with every move to erode the island’s pre-eminence, it makes itself more vulnerable. In the worst case, Taiwan’s chip chokehold may only invite more destruction: Some American commentators and war-gamers have suggested that, if China does invade, the U.S. should destroy TSMC’s fabs to stop them from falling under China’s control.

One problem with trying to control the global flow of semiconductors is that they’re very small, lightweight and valuable. “Smugglers love stuff like that,” Allen says. But China needs chips in large quantities to power massive data centers and facilities housing cutting-edge computers — and that makes their procurement uniquely challenging. “Those are large buildings, and they don’t move,” Miller says. “It’s uniquely suited to be understood by U.S. intelligence.” The structure of the market will also present a hurdle to anyone trying to circumvent the regulations: The number of companies capable of producing cutting-edge chips is extremely limited, and the number of buyers with a history of purchasing from them is also small.

But there are also loopholes in the enforcement system, which Chinese companies are already probing. In March, Inspur Group, a Chinese conglomerate active in cloud computing and server manufacturing, was added to the entity list. But according to The Wall Street Journal, at least one of the company’s affiliates was not included in the listing, allowing American businesses to sell to the subsidiary unimpeded.

Chips are moving through China by more circuitous routes as well. Last month, Reuters reported on a booming underground trade in high-end chips in Shenzhen, with multiple retailers touting their ability to supply the A100, a powerful chip made by the American company Nvidia. The U.S. government’s ability to detect and prevent these types of hand-to-hand sales is limited: B.I.S. has only three enforcement agents stationed in China. But the existence of the underground market was, in fact, an early signal of the controls’ efficacy. According to retailers interviewed by Reuters, the chips were available only in small batches, perhaps from stocks shipped to China before the ban took effect. “It highlights that the controls are working,” an industry executive, who requested anonymity in order to candidly assess American policy, told me. “They wouldn’t be doing that if chips flowed freely.”

The battle over the controls may serve as a kind of civilizational test. In the West, the onus of compliance will fall largely on private companies. “Industry is our primary line of defense,” says Thea Rozman Kendler, the assistant secretary of export administration at B.I.S. “We can do whatever we can in government to promulgate clear and concise and effective rules, but it’s industry that’s responsible for compliance and putting those rules into effect.” For the controls to succeed, American industry will need to engage in actions that are, at least in the short-term, self-sabotaging, shutting off a piece of the lucrative Chinese market. Companies will have ample reason to operate as close to the edge of legality as possible, and their Chinese counterparts will have every incentive to game the system and feed them the information needed to approve a sale.

For China, the race for technological self-sufficiency presents perhaps a greater challenge than any the country has faced. The very traits that make China’s success possible — iron political will, endless money and a whole-of-society mobilization around key goals — are just as likely to prove its Achilles’ heel. In the last several years, as the push to develop a domestic semiconductor industry has taken on new urgency, at least six multibillion-dollar chip projects have failed and a number of executives have been put under investigation for corruption. Tens of thousands of companies, meanwhile, have flooded into the semiconductor industry, some of them with little or no expertise in chips, solely in search of easy government money.

“It’s easy for political leaders or executives to think if we throw enough money and engineers at this problem, we’ll solve it,” Jason Matheny, former deputy director of the White House Office of Science and Technology Policy, says. But the immense complexity of the science and the globe-spanning supply chains are difficult to imitate. “At some point,” says Matheny, “you’re replicating all of human civilization.”

Yet if any country can overcome such a challenge, it is likely to be China. The Oct. 7 export controls, while crippling China’s advanced chip-making ability for the foreseeable future, may end up spurring long-term growth. When Chinese companies had access to superior Western chips and suppliers, domestic manufacturers struggled to find business. Now Chinese companies must innovate together or die. “We’ve removed choice,” Kilcrease says. “Before they could choose between national resiliency and commercial motivations, and now they don’t have that choice.” Should a large share of China’s $400 billion in annual chip imports be turned inward, domestic chip companies may finally have the means and motivation to catch up.

Huawei may prove instructive once again. Battered by American sanctions and China’s strict pandemic controls, the company’s 2022 profits fell by a staggering 70 percent compared with the previous year. But there are signs of life: Despite the plunge in profits, revenues rose slightly, and the company’s operating system, HarmonyOS — which it developed after being cut off from using Android — has been installed on more than 330 million devices, mostly in China. Huawei remains one of the world’s biggest spenders on research and development, with a budget of about $24 billion last year and a research team of over 100,000 employees.

The emphasis on innovation is by necessity. Bereft of American chips and technology, Huawei has been forced to redesign and remanufacture all of its legacy products to ensure they contain no American components. The company is dragging along an entire domestic supply chain in its wake, sending its own engineers to help train and upscale Chinese suppliers it once shunned in favor of foreign alternatives. Recently, Huawei claimed that it had made significant breakthroughs in the electronic design software used to produce advanced semiconductors at a size that, though still a few generations behind the U.S., would put it further along than any other Chinese company. If Huawei manages to succeed, it could emerge from American sanctions stronger and more resilient than ever.

The controls will not stop China permanently. Even in the best case, they’re a delay tactic, meant to offer the U.S. and its allies space to expand their lead in key technologies. The question is how much time B.I.S. can buy for the West. “This isn’t the type of business where success is batting one thousand,” said Matt Axelrod, the assistant secretary for export enforcement. “Our goal is to stop as much as possible.”

I was meeting with Axelrod and Rozman Kendler, the export administration chief, at the Commerce Department building, in an office overlooking the Ellipse in downtown Washington, D.C. It had taken just a few minutes to walk nearly the entire length of B.I.S.’s headquarters. Even allowing that enforcement need not be perfect, I wondered whether this was a fair fight — the Bureau of Industry and Security versus the full weight of the Chinese government. How could B.I.S. win? How could it hope to move as quickly? How could B.I.S. possibly put as much money behind the effort, and care as much about chips as China does? The future of chips was life or death for China.

There were a few seconds of silence before Rozman Kendler answered, in a quiet voice. “It’s probably life or death for us too,” she said.

University of Erlangen-Nürnberg @FAU leads the way:
* "Due to increasing international misgivings" no new research & partnership agreements with Huawei
* suspension of collaboration of China Scholarship Council (CSC) grantees (exception DAAD co-grantees).
h/t @Ray_WongHKI pic.twitter.com/6jWyrcQSNY

— Thorsten Benner (@thorstenbenner) July 18, 2023

Huawei Teardown Shows Chip Breakthrough in Blow to US Sanctions

The company’s Mate 60 Pro is powered by SMIC’s 7nm chips, according to analysis that TechInsights conducted for Bloomberg News

By Vlad Savov and Debby Wu / Bloomberg

September 4, 2023 at 6:38 AM UTC

Huawei Technologies Co. and China’s top chipmaker have built an advanced 7-nanometer processor to power its latest smartphone, a sign Beijing is making early progress in a nationwide push to circumvent US efforts to contain its ascent.

Huawei’s Mate 60 Pro is powered by a new Kirin 9000s chip that was fabricated in China by Semiconductor Manufacturing International Corp., according to a teardown of the handset that TechInsights conducted for Bloomberg News. The processor is the first to utilize SMIC’s most advanced 7nm technology and suggests the Chinese government is making some headway in attempts to build a domestic chip ecosystem, according to the research firm.

Much remains unknown about SMIC and Huawei’s progress, including whether they can make chips in volume or at reasonable cost. But the Mate 60 silicon raises questions about the efficacy of a US-led global campaign to prevent China’s access to cutting-edge technology, driven by fears it could be used to boost Chinese military capabilities.

With its export controls last year, the US administration tried to draw a line at preventing China from getting access to 14nm chips, or about eight years behind the most advanced technology. The US had also blacklisted both Huawei and SMIC. Now China has demonstrated it can produce at least limited quantities of chips five years behind the cutting-edge, inching closer to its objective of self-sufficiency in the critical area of semiconductors.

“It's a pretty important statement for China,” TechInsights Vice Chair Dan Hutcheson said. “SMIC’s technology advances are on an accelerated trajectory, and appear to have addressed yield-impacting issues in their 7nm technology.”

The phone has sparked speculation because Huawei is at the center of Washington-Beijing tensions, the target of sanctions over allegations it aids China’s military. Once the world’s biggest telecommunications provider, it’s been pulling out the stops to research alternatives to American circuitry since the Trump administration added Huawei to its Entities List in 2019.

The Mate 60 advance could reset the contest for tech supremacy, as it suggests Huawei is able to come close to, though not quite match, the fastest mobile devices using a chip that’s designed and produced in China. Testing by Bloomberg News showed the Mate 60 Pro capable of cellular speeds on a par with 5G devices like Apple Inc.’s latest iPhones.
It also raises questions about SMIC’s compliance with US rules stipulating that any company intending to supply Huawei using American technology — which is present throughout SMIC’s operations — must obtain Washington’s approval.

Even at its most advanced, Chinese chipmaking has a performance gap to make up, as the main processor in the Mate 60 Pro is two generations behind the latest technology, according to the teardown by TechInsights, whose findings lent weight to unsubstantiated reports posted by amateur technicians, bloggers and influencers on Chinese social media.

Apple’s current iPhones are built at 4nm and next week it will introduce a new flagship iPhone powered by a 3nm chip.

Shenzhen-based Huawei and Shanghai-based SMIC may already be approaching the ceiling of what they can achieve without more advanced chipmaking machinery. To move beyond 7nm, iPhone supplier Taiwan Semiconductor Manufacturing Co. utilizes extreme ultraviolet lithography machines from ASML Holding NV. China is completely prohibited from importing those machines.

It is unclear how many units of the new device Huawei intends to produce. The Mate 60 Pro sold out almost immediately and appears to have been available in very limited quantities. It was welcomed with an outburst of patriotic fervor across Chinese social media, and national outlets like CCTV and the Global Times lauded it as a symbol of China’s irrepressible spirit.

Huawei’s consumer business took a heavy blow after the company was cut off from chipmakers like TSMC three years ago, when its smartphones were the clear growth driver for one of China’s biggest tech manufacturers. Its consumer sales are now less than half the size they were before the sanctions took effect, and the company has shifted its focus to developing technology for enterprise, cloud and automotive applications.

Analysts at Jefferies, including Edison Lee, cautioned that Huawei’s Mate 60 may not signal the kind of progress in chips as it first appears. They wrote that selling out of Huawei's phones in hours suggests limited inventory. They also suggested that Huawei may be powering some Mate 60s with chips from TSMC, which it had stockpiled before the US cut off such purchases.

In a report entitled “Huawei Mate 60 Pro: More Myths Than Fact,” the Jefferies team said it thinks China can produce only a “very small” volume of 7nm chips.

Spoiler:

German Economy Minister Robert Habeck's speech to ambassadors today is worth a listen. He goes where Scholz has never dared:
- Trade & investment is now geopolitical
- The unwinding of globalisation is unlikely to reverse
- Europe may need to choose between the US & China https://t.co/zImMw8cMWz

— Noah Barkin (@noahbarkin) September 5, 2023