The longstanding rivalry between the US and China has reached new heights, escalating to an unprecedented level of animosity in the past six years. The US government has openly acknowledged China's potential to challenge its global leadership in the National Security Strategy document published in October 2022. China's social, economic, military, and technological developments under Xi Jinping's leadership over the last two decades have given it the resources and capabilities to dispute US supremacy.
The following quote from the document encapsulates the reason why the US government considers China a threat: "The People's Republic of China (PRC) is the only competitor with both the intent and, increasingly, the capability to reshape the international order in its favor. Beijing aims to create a broad sphere of influence in the Indo-Pacific region and to become the world's leading power."
This statement reflects the historical context that has led to the current international situation. Every time the US administration imposes a new package of sanctions targeting China or its allies, such as Iran and Russia, it justifies it by arguing that the goal is to prevent China from using advanced technologies developed by US allies to enhance its military capabilities further. The semiconductor industry plays a significant role in this context, with many prohibitions directly targeting Chinese manufacturers of integrated circuits.
However, the US has much more power than just imposing sanctions. The US and its allies, such as the Netherlands, Japan, South Korea, and Germany, have a significant influence in the semiconductor industry. The leading equipment manufacturers, including ASML, Tokyo Electron, and Canon, are prohibited from selling their most advanced machines for producing integrated circuits to Chinese clients. Moreover, companies such as NVIDIA, Intel, AMD, Samsung, Micron, and SK Hynix cannot sell their most sophisticated chips in China.
Currently, the US sanctions are so restrictive that any advanced technology under its control cannot reach China. At least, that is the official stance. However, China, led by Xi Jinping, is adapting rapidly to these challenging circumstances. Its strategy for dealing with the situation has two main pillars. The first requires dedicating significant resources to developing its chip industry with the goal of becoming self-sufficient in the face of possible foreign technology restrictions. The second pillar involves protecting its chip industry by increasing the production of mature integrated circuits using established technologies.
According to analysts at Swiss investment bank UBS, China is investing in the development of mature circuit technologies because they are essential for numerous strategic industries, such as electric cars, consumer electronics, and home appliances. "US restrictions are limited in the mature node territory... We are seeing China increasing its efforts to invest in these areas," said Randy Abrams, one of the UBS analysts.
In the current climate of confrontation, it is reasonable to question why the US is also restricting China's access to equipment used in the fabrication of mature chip nodes. With high probability, it is not because China lacks the necessary machines for fabricating these types of semiconductors. Instead, extending sanctions would further harm companies whose businesses in China are already seriously compromised, such as Tokyo Electron, Nikon, Canon, and especially ASML.
In these circumstances, the US has no other option but to tread carefully with its next moves.
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