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China on course to elude US chip-making equipment bans


Jul 2, 2014
China is doubling down on its indigenous chip-making capabilities. Image: Twitter

Chinese tech giant Huawei’s attempt to make semiconductors without American equipment has generated global headlines as the US-China tech war takes yet another turn.

It is one more strong hint – if any were needed – that the US government is in the process of creating a competitor that it won’t be able to control while forcing American companies to abandon a massive market that until now has supported their sales, profits, economies of scale and stock prices.

Geopolitics have overridden America’s past devotion to open markets and the situation is not likely to change anytime soon as long as current political structures and mentalities prevail.

The US is intent on rebuilding its own semiconductor industry and denying China technology with advanced military or other national security-related applications – the first and prime example being Huawei’s telecom equipment. So what can China do about America’s sanctions and bans?

It has been widely reported that China cannot make leading-edge semiconductor devices without EUV lithography equipment from ASML of the Netherlands and electronic design automation (EDA) tools from Synopsis and Cadence of America or Siemens (Mentor Graphics) of Germany.

It’s also been reported that China couldn’t make semiconductors at all without production equipment from America’s Applied Materials and Lam Research or inspection equipment from the California-based KLA.

On the one hand, this is true – but only to a certain extent. On the other, China is potentially in an even weaker position than reported, at least in the short run.

There is only one country that, if forced to, could make semiconductors independently: Japan. The others, including the US, are missing large parts of the semiconductor supply chain.
Why is it that South Korea and Taiwan, both of which have built the most competitive integrated circuit (IC) foundry and memory IC businesses in the world, make almost no semiconductor-making equipment indigenously?

It’s not because their scientists, engineers and technologists lack the talent or the two countries lack the manufacturing capability. The main reason, rather, is that it would not be economically efficient as the barriers to entry are still very high.


TSMC makes chips but virtually no chip-making equipment. Image: Facebook

Why do the Japanese rely on Taiwan Semiconductor Manufacturing Company (TSMC) and American-made EDA tools and use heaps of equipment from Applied Material, Lam Research and KLA?

Answer: Because it is more efficient and cost-effective, and they have long-standing trustworthy relationships with those and other companies in America, Europe, Taiwan and South Korea that have proven profitable over the years.

This, of course, is how the theory of comparative advantage is supposed to work in a free market-driven global economy.

China has taken advantage of that global market system while implementing an aggressive mix of mercantilism and intellectual property (IP) theft. Now, it is gradually and systematically being excluded from key sectors of the system.

It is not entirely accurate to say Japan and South Korea did the same thing on their way to the technological top. Both were and are American allies with US forces stationed on their territories. China is a rival and has been ever since the US took the side of the Nationalists in China’s civil war.

It is interesting but irrelevant to recall that Alexander Hamilton and other early American leaders recommended and rewarded IP theft from Britain and Europe. If anything, the lesson of history is: Look out for No 1.

For China, that means double down on industrial policies to develop advanced technologies. Semiconductors are China’s tech weakness and that is where Beijing’s focus will remain until it can solve the problem of American interference and sanctions. As in the US, economic efficiency will take a certain back seat to military and national security matters.

As noted by Rakesh Kumar, professor in the Electrical and Computer Engineering department at the University of Illinois, recently told Fortune magazine:

“Higher costs would threaten the competitiveness of chips for consumer devices, as seen by how US sanctions nearly bankrupted ZTE and hobbled Huawei. But cost won’t deter the use of these pricier chips for military and other strategic purposes. The growing use of artificial intelligence—where China already has world-class strengths—in chip manufacturing and accumulated experience could also reduce the cost of alternatives, making export control measures less effective over time.”
Technological workarounds are already bridging the gap between China’s current capabilities and the industry’s leading edge. These include clever packaging and maximum use of DUV ArF immersion lithography.

Chinese chipmaker SMIC, which recently shocked the US by announcing that it had produced 7-nm chips despite being denied access to EUV equipment, is now reported to be advancing to more advanced 5-nm. SMIC has also started construction of a new 300mm wafer fab.


China’s SMIC chipmaker is working to transcend US sanctions. Image: Twitter / Global Times

In the fields of artificial intelligence and high-performance computing, Xiangdixian Computing Technology and Moffett AI have announced new devices that they claim can replace the GPUs that Nvidia and AMD are no longer allowed to sell to China. The design rules are not as advanced (12-nm versus 4-nm for Nvidia) but they work.

The most successful Chinese semiconductor equipment maker to date appears to be AMEC, which has reportedly sold etch tools to TSMC and shipped tools to Samsung, Intel and Micron for testing. According to CS Insight and other sources, AMEC has demonstrated dielectric etch capability at 5-nm.

Meanwhile, Chinese lithography equipment maker SMEE is reportedly working on a new ArF immersion lithography tool that could, with multiple patterning, be used to make 7-nm chips.

Nikon’s NSR-S635E ArF immersion scanner “Provides world-class device patterning and productivity for 5-nm node applications and beyond,” the company has said, revealing new chip-making horizons without EUV.

If successful, US efforts to stop ASML from shipping DUV lithography tools to China might be the best thing that ever happened to SMEE.

Industry association SEMI lists about 80 Chinese companies involved in semiconductor equipment research and manufacturing – and all of them can be assumed to receive government support.

Following in the footsteps of Japan, but driven by fear of escalating sanctions, China now aims to develop a complete, autonomous semiconductor supply chain.

According to IC Insights, China consumed US$186.5 billion worth of semiconductors in 2021, accounting for 36.5% of the world market. Only 17% of Chinese semiconductor demand was met by production in China and only 7% by Chinese companies.

These figures show the market opportunity for Chinese semiconductor design, manufacturing and production equipment companies, and the corresponding opportunity cost for foreign companies hamstrung by US government export restrictions. Import substitution alone can give Chinese companies economies of scale.


EDA software used in high-end chip design is the latest technology the US is trying to keep out of the hands of China. Image: Twitter

Several Chinese companies make EDA tools but none of them are yet capable of replacing the most advanced imported products that the US government recently put under sanction, as Asia Times reported. But industry sources note that China has imported “boatloads” of EDA tools that can be used for the next three to five years.

That appears to be China’s window of opportunity. Sometime in the second half of the decade, we will know whether the US government’s attempt to stifle China’s semiconductor industry has succeeded or failed.

Failure seems likely, except at the leading edge, and the cost for America and its semiconductor companies will likely be very high.

Follow this writer on Twitter: @ScottFo83517667



Dec 11, 2009
Viet Nam
Korea, Republic Of
As far as I know from various sources, the key inventions behind ASML machines (DUV, and possibly EUV machines as well) were from Taiwan (to be precise, from someones who had worked for TSMC). ASML is just an assembler, albeit a high-end assembler, from components sourced worldwide.
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Nov 4, 2011

America’s “Chip War” Against China Will Backfire​

Chris Lowe | Nov 4, 2022 | The Daily Cut |

The chip wars are heating up…
The U.S. and China are in a race to become technology superpowers.
Each side believes this will give them an edge should the two countries go to war.
And that’s looking more likely since Chinese leader Xi Jinping just tore up the rule book and appointed himself leader for life.
Xi made it clear last month at the Chinese Communist Party’s (CCP’s) 20th National Congress that he sees “reunifying” China and Taiwan as a key goal for his regime.
That’s CCP speak for an invasion by Chinese troops of the democratically ruled island nation.
President Trump sent the first shot across China’s bow.
His administration cut off Chinese tech firm Huawei from advanced chips. It also pressed the Dutch government to bar the sale of extreme ultraviolet (EUV) lithography machines to Chinese companies.
Chipmakers need these machines to etch the finest details on advanced semiconductors. And Dutch company ASML (which stands for Advanced Semiconductor Materials Lithography) is the only one in the world that makes these machines.
And President Biden has continued the pressure on China.
Last month, the U.S. Department of Commerce introduced sweeping rules aimed at cutting China off bleeding-edge chips for supercomputers.
This includes a block on sales of the advanced EUV machines.
And this last detail has one reader of our tech expert, Jeff Brown, thinking about ways ASML could get around the ban…
Reader question: Why doesn’t ASML sell their EUV lithography machines to China and simply replace all U.S. components with those made by other countries?
– John L.
Jeff’s response: Hi, John. Thanks for your question. I recently discussed the new export controls on chipmaking equipment to China.
The new rule is titled “Implementation of Additional Export Controls.” And it outlines aggressive new controls regarding the exports of semiconductor technology.
This is an economic war with China. The new rule will stimy China’s ability to make bleeding-edge semiconductors.
Could ASML get around this control by swapping out U.S.-made components in their machines?
That’s a logical thought. But the U.S. has banned ASML from selling any kind of EUV machines to China. It doesn’t matter whether they include U.S.-made components.
And yes, the U.S. does have that power, despite ASML being a Dutch company.
But let’s say just for argument that U.S. components could be swapped out.
As most of my readers know, before coming on board as an analyst at Legacy Research, I was an executive at NXP Semiconductors Japan. It supplies chips to carmakers as well as other users.
The supply chains around building a car or truck are highly complex. It takes years of designing, planning, and securing the necessary components to make a modern vehicle. With few exceptions, it would have been unthinkable to swap out components at the last minute.
It’s a similar story with ASML’s lithography machines. These are the most advanced chipmaking tools on the planet. A machine this complex can’t easily swap out components either. Many are custom designed for ASML.

An ASML EUV machine (Source: ASML)
It would take years to make the adjustments to rid ASML equipment of U.S.-made components. And even if that were possible, ASML still couldn’t sell EUV technology to China.
China would like to buy these machines directly from ASML. That would give it the ability to make semiconductors on par with what U.S. chipmakers Qualcomm, NVIDIA, and AMD are producing.
But China still has access to ASML’s machines through other channels.
Most semiconductor companies use either TSMC in Taiwan or Samsung to make their semiconductors. And TSMC and Samsung make these chips using ASML’s EUV machines.
This is one of the reasons why I think the policy is misguided. There will always be secondary markets and intermediaries. China even has ways to procure components to make advanced semiconductors.
All these policies will do is damage U.S.-based technology companies and antagonize the Chinese government at a time of intense global crisis.
They will also increase the likelihood that China will assert control over Taiwan, and the Taiwanese semiconductor industry, which would be devastating for the U.S. and Europe.
Next, reader Mark K. wants to know if the U.S. economy could be on the verge of not only a recession, but a deep depression.
And standing by with an answer is colleague Nomi Prins. As regular readers will know, Nomi is a former investment banker who became an investigative journalist after quitting her seven-figure job at Goldman Sachs.
She now heads up The Distortion Report. She’s on a mission there to show her readers how to profit from the distorted markets central banks and governments have created by overstimulating the economy with gobs of digitally “printed” cash…
Reader question: How likely are we to get not just a deep recession but a real depression out of what’s happening today?
The indicators seem numerous that we are in deeper trouble than the pundits and the Fed are letting on.
– Mark K.
Nomi’s response: Thanks for writing in, Mark. This is a hugely important question right now.
A rule of thumb for a recession is when a country sees negative GDP growth for two quarters in a row.
Well, we just got new GDP numbers yesterday for the third quarter. And we got news that growth came in at 2.6% for the quarter.
This is good news. Especially coming after two back-to-back quarters of negative GDP growth (-1.6% in Q1 and -0.6% in Q2). Plus, it slightly exceeded the analysts’ expectations.
So, by that measure, we’ve pulled out of a recession. But we’re not fully out of the woods just yet.
If you look past the headline GDP number, growth rates are undeniably slowing.
Consumer spending, the bedrock of the U.S. economy, inched up 0.4% in the third quarter. But that was down from a 0.5% increase in previous quarter.
Gross private domestic investment – a component of GDP that tracks equipment purchases by firms and changes in business inventories – fell 8.5%. That was after tumbling 14.1% in the second quarter.
And residential investment, a gauge of homebuilding activity, plunged 26.4%. That was after falling 17.8% in Q2. This reflects a sharp slowdown in the real estate market.
So, why was the headline GDP number positive in the third quarter?
In a word, trade. International trade accounted for the bulk of the rebound in U.S. economic growth. As U.S. retailers imported fewer goods, the biggest contribution to growth in Q3 came from a shrinking of the trade deficit.
The problem is that this is a one-off. Most economists agree it likely won’t repeat in future quarters.
This paints a rather bleak picture of the U.S. economy. So, you are right about that.
That said, I remain optimistic that whatever economic troubles we face going forward will be short-lived and relatively shallow.
This is down to the Fed and its policy of raising interest rates to try to dampen inflation.
The Fed’s unofficial mandate is to keep stocks from tanking too much. And despite what it says in public, it knows it will thrust the economy into a severe and prolonged downturn if it keeps hiking too much. And this would have a huge negative impact on stocks.
I’ve been saying for months that the Fed will have to begin to pivot toward less aggressive rate hikes before the year is out.
Now, don’t get me wrong. We’re still nowhere close to seeing the Fed start slashing rates.
But after signaling the initial stages of its pivot to the media (and, by extension, to the big banks and the market), it’s only a matter of time before the Fed changes tactics and walks back its hawkish stance.
Finally, a question about real estate investment trusts (REITs) for friend of Legacy Brad Thomas.
As I’ve been writing to you about in these pages, REITS trade like stocks on a public stock exchange. But they have a specific business model.
They finance, own, and operate income-producing real estate. And by law they must pay out at least 90% of their rental income to their shareholders.
This makes them a great source of income for investors.
And as Brad talked about in these pages, he used REITs and other income-producing stocks to make back millions after he lost everything as a real estate developer in the 2008 crash.
And Brad answers readers’ questions about REITs and other income plays at his Intelligent Income Daily e-letter. (Sign up for that here.)

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