What the most ‘Chinese’ smartphone yet tells us about politics

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The writer is author of ‘Chip War’

What is the significance of Huawei’s new smartphone chip? The controversial Chinese telecoms company has attracted headlines because its new Mate 60 Pro phone has a sophisticated homegrown chip. SMIC, the Chinese chipmaker that Huawei collaborated with, has never previously made such an advanced semiconductor.

The chip industry is divided on what this means. On the one hand, SMIC has succeeded only in replicating a manufacturing process — called 7 nanometre — that Taiwan’s TSMC, the world’s leading chipmaker, was already producing at high volume in 2018. SMIC generally lags half a decade behind TSMC in rolling out new manufacturing processes so, by that metric, the Chinese company’s 7nm process has arrived right on schedule.

Moreover, to produce Huawei’s chips, SMIC has used DUV lithography machines rather than more advanced EUV tools, which it is barred from buying. Foreign chipmakers such as TSMC and Intel learnt how to produce 7nm chips with DUV machines years ago, before turning to more efficient EUV tools. SMIC’s manufacturing costs are thus probably only competitive because the Chinese state is footing the bill. The company’s 7mn chip is, then, far from an unprecedented breakthrough.

Nevertheless, the fact that SMIC has produced millions of such chips is real progress — and evidence that US, Dutch, and Japanese controls are far from watertight. The Netherlands will continue to allow shipment of advanced DUV lithography tools until the end of this year. Meanwhile, companies from all three countries and other western nations continue to ship less advanced tools to China, as well as key chemicals, gases and chip packaging equipment. China hawks in the US Congress question the logic of banning the transfer of certain tools but selling the chemicals needed to operate them.

Yet focusing only on the main chip in Huawei’s new phone misses the broader ramifications: the Mate 60 Pro shows that Beijing is as committed as ever to squeezing out western chipmakers and electronics companies from the Chinese market.

Substituting imported chips with domestic components has been China’s stated goal since around 2014, when it launched its first major semiconductor subsidy fund. Yet until now, most phones sold in the country — even from local brands such as Oppo and Xiaomi — have been full of foreign-made chips. 

Huawei’s Mate 60 Pro is different: it may be the most “Chinese” advanced smartphone ever made. As well as the phone’s primary 7nm processor, many of the phone’s auxiliary chips are homegrown, including the Bluetooth, WiFi, and power management chips.

Of course, no one knows whether, in a competitive market, Huawei’s homemade suppliers could compete on cost. But cost matters less when the government is bankrolling a self-sufficiency drive. As the new phone hit the shelves, Beijing announced a new $40bn fund — one of several in recent years — to pour subsidies into chipmakers.

The government is also helping with new restrictions targeting the Mate 60 Pro’s primary competitor — the iPhone. Huawei’s phone launched alongside reports that Chinese government institutions and state-owned companies are discouraging employees from buying Apple products.

All this threatens the foreign companies that have advocated stabilising trade ties between China and the west. As recently as July, US semiconductor chief executives made pilgrimages to Washington to argue against new restrictions on China. Now, their market share is at stake. If the Chinese market looks lost, American companies have no reason to lobby for access to it.

And as their chips are replaced by local versions, they may question whether the west’s decision to keep supplying China with chipmaking tools and chemicals is really in their interest.