Too Late For 'Full Blocking Sanctions' On China Chip Makers

Dylan Patel of SemiAnalysis, a California research and consulting firm specializing in the semiconductor supply chain, wrote:“As we approach the 1-year anniversary on [sic] the October 7th China sanctions, it is abundantly clear that the export controls are failing... the Commerce Department's standards were set at a level that will not ultimately inhibit China from breaking through the barriers set last fall.”

Patel recommends“a package of potential Western responses to China related to front-end equipment, chemicals, advanced packaging, and IP licensing that would totally shut out the CCP.”

Specifically, these include restricting exports of EDA (Electronic Design Automation) tools; ArF immersion lithography systems, photomasks, mask blanks and mask writers, epitaxy, etch, deposition, ion implant, CMP (Chemical Mechanical Planarization), metrology equipment and 3D IC packaging equipment; photoresists, etching gas and other chemicals; and servicing of existing equipment.

But would these intensified restrictions make it impossible for the Chinese to produce advanced chips such as the 7nm Kirin 9000 series processor designed by Huawei subsidiary HiSilicon and made by SMIC that powers the Mate 60 Pro or other advanced artificial intelligence (AI) processors?

Exports of ArF immersion lithography equipment to China are now restricted by the Netherlands and Japan , where they are made. But the Chinese have already bought many of these machines and, as demonstrated by the Mate 60 Pro's processor, SMIC engineers know how to use them.

Exports of EUV systems, the most advanced type of lithography, essential for producing chips at 5nm and below, have been restricted since 2019. ArF immersion is the most advanced type of previous-generation DUV lithography.

Exports of epitaxial wafers and etch, cleaning, deposition, annealing, metrology and related equipment from the US, Japan and the Netherlands have also been restricted.

But the Chinese have also imported a lot of these machines and have started to make their own epitaxial wafers. In the case of SMIC and other companies that have adequately prepared, the latest sanctions might not stop them from ramping up production for another two or three years.

That is a guess based on the large amounts of semiconductor production equipment the Chinese have imported, representing roughly 25% of total worldwide sales in recent years.

It is not clear how large their stockpiles are or exactly what they include, however. And they are probably not going to reveal that publicly anytime soon. Last May, SMIC removed all mention of its 14nm process from its website, leading to speculation thatsanctions had crimped its production. Now, though, the company has 7nm chips in mass production.

The Chinese are well aware of the dangers posed by sanctions and have moved aggressively to mitigate those risks. While importing as much advanced equipment and materials as possible, Chinese firms are also working flat out to produce their own.

The lesson was driven home by the example of YMTC, China's top NAND flash memory maker, which was unable to complete its second factory after sanctions cut off its access toequipment and engineering services at the end of last year. YMTC is now switching to domestic and alternative foreign suppliers, but the company reportedly faces a long, hard slog.

Several Chinese companies make photoresists, including Jiangsu Nata Opto-electronic Material, Red Avenue, Jingrui, Shanghai Sinyang, and Xuzhou Bokang Information Chemicals. So far, industry sources say their products can only be used down to 28nm, but photoresists for more advanced process nodes all the way to 5nm are under development. China's Kaimeite Gases
is a certified supplier of ASML.

Shanghai Micro Electronics Equipment (SMEE) reportedly plans to deliver its first 28nm-capable DUV lithography system, which can make 28nm chips, by the end of this year.

Other Chinese equipment companies include AMEC (epitaxy, etch and deposition), Naura (etch, cleaning and deposition), CEC Electronics (ion implant), Sizone (CMP) and Kincoto (packaging equipment).

Chinese companies appear to be making – or at least trying to make –everything needed to produce semiconductors, from EDA to silicon and other types of wafers, chemicals and other materials, and the entire range of chip-making equipment and components. Their products are lower quality than imported ones and can still only meet a fraction of demand, but quality and quantity are improving every year.

More than 600 Chinese semiconductor equipment makers attended the China Semiconductor Equipment Annual Conference and Semiconductor Equipment and Core Components Exhibition held in Wuxi in early August.

At the event, as reported by the South China Morning Post, Jacky Lin, CEO of Honghu Suzhou Semiconductor Technology, said that“Withoutsanctions, China's semiconductor industry would probably have continued on its old path as a pure chip equipment buyer, manufacturing for others.”

Now, if“full blocking sanctions” are imposed, foreign suppliers might eventually lose the entire Chinese market. Somepoliticians might not be worried about that, buttech companies are, and it would probably be nearly impossible to persuade Europe, Japan, South Korea and Taiwan to completely abandon the Chinese chip market.

CEOs Jensen Huang of Nvidia and Peter Wennink of ASML have warned theand European governments that whatever the Chinese cannot buy, they will make themselves. In an interview with DigiTimes, Wennick said that the restrictive policies of Western governments are compelling China to become highly innovative.

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