This is the third in a three-part series delving into the unprecedented challenges China is facing on its road to economic recovery, from inexperience in dealing with such crises to the compounding implications of internal demographic shifts and external trade hurdles.
The story of how Chinese scientists overcame technological containment efforts by the Soviet Union and the United States to develop nuclear weapons in the 1960s has long been a textbook staple in China, but analysts caution that today’s hi-tech hurdles could be harder to surmount.
Until recently, a return to such technological isolation seemed inconceivable to younger Chinese brought up during an era of globalisation.
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But while China is now the world’s second-largest economy, and its students have won global acclaim for their prowess in science, technology, engineering and mathematics – subjects collectively known as STEM – it is now facing new technology restrictions sparked by US concerns about its rapid rise.
Those restrictions are centred on the high-end semiconductors that form the heart of modern technology, and because it is an area in which China is highly dependent on the US, the challenges are unprecedented. They also extend beyond the hardware itself, because such chips are the engines that will power key sectors of the future – from artificial intelligence to quantum computing.
This time, China might never fully break through the “high fence” erected by the US and its allies, analysts said.
“It takes time. For those very high-end [semiconductors], it is possible that we may never break through – this is the real world,” said Chen Fengying, a researcher with the China Institutes of Contemporary International Relations (CICIR), a Beijing-based governmental think tank.
The current round of restrictions started in 2019, when sanctions imposed on Shenzhen-based telecommunications equipment giant Huawei Technologies cut off its access to advanced US technologies. Three years later, the US ban on exports of advanced semiconductors and chip-making software was expanded to all Chinese companies, and Washington is now joining hands with other key players in the global semiconductor supply chain to reinforce the fence surrounding China.
That plurilateral approach promises to create a more coordinated international framework when it comes to closing loopholes that China could exploit, said Dominic Chiu, a senior analyst with Eurasia Group, a New York-based consultancy.
“The success of the export controls will largely now depend on the cooperation of allies like the Netherlands and Japan, and whether it is politically possible for them to impose parallel restrictions,” he said.
In semiconductor research and development, one key advantage held by the West is barrier-free communication and cooperation between states, companies and academic institutions, said Shi Yinhong, a professor of international relations at China’s Renmin University.
“This is something that China cannot obtain now, or in the foreseeable future, so it is completely impossible to have an advantageous status,” he said.
While all countries have financial difficulties, Shi said that when the developed world puts its financial resources together they far exceed those of China, which are already shrinking.
“China is also working very hard, despite various difficulties,” he said. “But it may only be able to achieve breakthroughs in certain individual items, rather than a wide range of breakthroughs.”
Chan Kung, the founder of Anbound, an independent think tank headquartered in Beijing, said China’s technological upgrading has mainly relied on talent trained in the West. And that was something that dated back to the development of the atomic bomb in the early days of the People’s Republic, which relied heavily on US-trained Chinese scientists.
“This has been the case in the past and will remain the case in the future,” Chan said. “Only by maintaining normal exchanges with the West can China make technological progress ... everything else is unrealistic.”
Lu Xiang, a research fellow at the Chinese Academy of Social Sciences, said the current political rhetoric in the US has created an atmosphere hindering science-related exchanges with China – including investigations by US agencies targeting scientists with Chinese ties.
In June, US Deputy Secretary of State Kurt Campbell said that Chinese students should study the humanities and social sciences in the US, rather than STEM subjects such as particle physics.
Lu said Campbell was seeking to undermine the legacy of model projects for US-China scientific research cooperation, such as the China-US Physics Examination and Application, an examination and admission system used by the physics departments of some American and Canadian universities for graduate school admission of students from China between 1979 and 1989 that was launched by renowned Chinese-American particle physicist Lee Tsung-Dao.
“Campbell’s remarks suggest that the current US administration is trying to cause a systemic bifurcation,” Lu said.
In the US, however, there is an ongoing debate on the efficacy of strict export controls. While policymakers are concerned that insufficient measures could jeopardise US national security, some business executives have said that overly stringent measures could help speed up breakthroughs in China.
A report issued this month by the Centre for Strategic and International Studies, a US think tank, argued that export controls have accelerated and scaled up Chinese efforts to find alternative sources of US technologies and to develop new technologies that bypass US ones altogether, ultimately facilitating a shift of global semiconductor supply chains away from the US.
“Together, these [Chinese] strategies threaten to render US export control policies – even when comprehensively enforced – less effective as a longer-term barrier to Chinese technological progression in advanced semiconductors,” the report said.
“More importantly, they also threaten to weaken US semiconductor industry leadership overall by hindering US companies’ market access and revenue, and consequently their long-term leadership in research and development.”
Lu said Chinese companies such as Huawei were once firm believers in comparative advantage and the international division of labour, meaning they saw no urgent need to establish manufacturing capabilities across the whole supply chain.
“But if you artificially impose restrictions, it will force China to develop its own industrial chain, and the road will surely be bumpy,” he said.
It would take decades for China to master cutting-edge chip fabrication technology such as extreme ultraviolet lithography – a field dominated by Dutch company ASML – Lu said.
“China’s current investment in the development of semiconductor-related advanced technologies is also unprecedented ... of course we hope that we will eventually have the capability, but the reality is that it will be very difficult,” he added.
One point of consensus among Chinese and American analysts is that US restrictions will be tightened, regardless of who moves into the White House next year.
But a second Trump administration might intensify restrictions even further as it is not necessarily going to be bound by the Biden administration’s “small yard, high fence” strategic framework, said Chiu from Eurasia Group.
Apart from export controls, he added, the next big step will be outbound investment restrictions, either in the form of a draft rule from the US Treasury Department or legislation.
“Unlike the US-Soviet space race during the Cold War, there is no clear finishing line with the [US-China] technology competition, where one side can definitively declare victory and end the policies that keep the competition from continuing,” Chiu said.
Yun Sun, director of the China Programme at the Stimson Centre in Washington, said that when it came to US restrictions, it was “not a matter of intensification, but a matter of evolution and expansion”.
“The US perception is that even if China can play catch up, it will not be quick or easy, and the US will use this time gap to develop further technological advantages over China in this and other domains,” she said.
“Whether China has a chance depends on how soon China can pull its act together and make up for what it cannot get from the US any more.”
To do that, Beijing hopes to fully leverage the advantages of its centralised system in the nationwide mobilisation of the resources needed to achieve breakthroughs.
Due to US containment, Chinese companies such as Semiconductor Manufacturing International Corp and Yangtze Memory Technologies Corp have been strengthening their partnerships with domestic toolmakers, and the country is also ramping up production of “legacy chips” – less advanced semiconductors built on nodes of 28 nanometres or larger that are widely used in everyday electrical devices.
However, Shi from Renmin University said that while state directives could make certain advancement achievable, there was “no precedent” for using them to achieve comprehensive technological advantages.
Chen from CICIR said state support was needed, but cautioned that the blind use of state power in advancing the semiconductor industry could result in massive waste.
A thorn in the side of the US, Huawei is ramping up efforts to make its own high-end semiconductors and shaping up as a promising Chinese champion in the tech race between the world’s two largest economies. Last year, it released the Huawei Mate 60 Pro, a phone powered by a sophisticated chip developed in China.
“The key is to have more companies like Huawei,” Chen said, adding that it was a good example for Chinese companies in terms of its dedication to basic research and development, whereas many others tended to focus on making a quick buck.
Analysts said that how successful China can be in overcoming American barriers remains an open question, but the world’s semiconductor supply chain is certainly heading towards fragmentation.
“Even if China successfully develops [advanced semiconductor technology], I don’t think parallel ecosystems are good for the world,” Lu from CASS said.
“If the systems in different countries are incompatible, the security threat will be much greater.”
More from South China Morning Post:
- How can China stay on path to prosperity as its demographic dividend ebbs away?
- An in-depth look at China’s economic crisis, and why inexperience is fuelling the fire
- Economist Joseph Stiglitz on the US-China trade war and the death of ‘hyper-globalisation’
- Are prospects for China’s exporters picking up on eve of Canton Fair?
- China to end Australian lobster ban by end of year, ‘huge relief’ for industry
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