The recent unveiling of Huawei’s newest line of smartphones, the Mate 60 series, marked an important milestone in Chinese semiconductor production. The 7-nanometre microprocessor powering the phone, known as the Kirin 9000S, is China’s most advanced yet, sporting 5G capabilities comparable to Apple’s latest iPhone.

The product’s release to the Chinese market in August coincided with US Secretary of Commerce Gina Raimondo’s visit to Beijing. This could be read as a deliberate move to embarrass Joe Biden’s administration after it attempted to kneecap Huawei’s ability to acquire such chip technology a year ago.

In October 2022, the Commerce Department introduced a set of export-control measures designed to prevent the use ^[1] of American chip technology for Chinese military purposes. They were targeted specifically at Huawei and the Shanghai-based Semiconductor Manufacturing International Corporation (SMIC) and included restrictions on the sharing of US intellectual property and sales of integrated circuits and chipmaking equipment in China and to Chinese firms. Rules were also imposed that aimed to restrict China’s semiconductor production to older 14-nm technology.

These controls have had varying degrees of success, but the 14-nm restriction is one of the more overt failures. The 7-nm chips in the new Mate 60 phones far outperform 14-nm chips because they use smaller transistors. This translates to more transistors per chip, resulting in improved performance and reduced power consumption.

Although the 7-nm chip still trails behind the 3-nm chip found in the new Apple iPhone 15—produced by global chip giant Taiwan Semiconductor Manufacturing Company—it signifies China’s growing prowess in chip manufacturing. Only a generation behind the frontier of the latest technology, China is coming closer to attaining its goal of technological self-sufficiency ^[2] in this critical sector using its wealth of domestic engineering talent.

For these reasons, the Kirin 9000S has sparked debate ^[3] about whether US export controls are working to stop China from advancing semiconductor technology that could enhance its military capabilities ^[4]. So, what are the most likely next steps for China’s semiconductor industry, and how effective have the US-imposed sanctions really been?

SMIC’s development of the 7-nm chip, despite export controls, can be attributed to the company’s access to lithography machines, a critical piece of equipment that creates semiconductors by marking the surface of a silicon wafer with a circuit design. While US efforts prevented China from accessing extreme ultraviolet lithography (EUV) machines, which can produce smaller chips with ease, the ready availability of older deep ultraviolet lithography (DUV) equipment still facilitated SMIC’s production of 7-nm chips, albeit at a higher cost.

Using a DUV machine to produce a 7-nm chip requires repeatedly marking the silicon, potentially pushing the machine’s operational limits ^[5]. In contrast, an EUV machine can do a simpler one-and-done operation. Progressing cheaply to 5-nm chips and beyond will require a more advanced, and strictly prohibited ^[6], EUV system. But this doesn’t mean 5-nm chips are entirely out of China’s reach. They could be made using DUV machines by 2025 or 2026, even with no changes in export restrictions. While being forced to use DUV for 5-nm chips could increase ^[7] China’s lithography costs by around 60%, lithography is only around a third of the total cost of producing a 5-nm chip.

Yet the US maintains ^[8] that it doesn’t have any evidence that China can manufacture 7-nm chips ‘at scale’. Washington also hasn’t confirmed or denied an investigation into Huawei, though it says that ‘every time we find credible evidence that any company has gone around our export controls, we do investigate’. Still, the US decision not to restrict older but critical pieces of lithography equipment like DUV machines produced in the Netherlands and elsewhere from being shipped to China was a massive loophole that China took full advantage of.

Ironically, sanctions meant to halt China’s tech progress have instead fuelled innovation. But their repeal wouldn’t mean Chinese companies would return to buying chips from American manufacturers. The damage has been done. Relaxing export controls now would just accelerate Chinese innovation. Despite the initial misstep, tighter, better enforced restrictions are now needed to slow China’s progress, particularly if they can force the Chinese chip industry into the arduous process of entirely restructuring ^[9] its incredibly complex lithography and semiconductor supply chain.

SMIC’s breakthrough shows that the US needs to continue tightening export controls on semiconductor technology. While it has recently expanded ^[10] its restrictions to include the Dutch DUV equipment used to make the 7-nm chips, due to conflicting export rules these machines could still make their way into China if approved by the Dutch government. And, at this point, no change to export restrictions can extinguish China’s desire to establish a homegrown semiconductor industry in the long term, nor would it be in the Biden administration’s best interests politically to suddenly soften its stance.

Loopholes in the restrictions and their lax enforcement prevented them from stifling China’s progress. SMIC’s access to DUV equipment from the West and its use of pre-existing chip designs ^[11] to produce the Kirin 9000S show that there were too many ways to wriggle outside the scope of restrictions. The US shouldn’t expect China to be any less creative in finding gaps in tighter regulations either.

To slow China down, the US needs to review its export controls and close further loopholes, or they will remain ripe for exploitation by Chinese firms.