The Achilles heel of China’s semiconductor industry? – the diplomat

China Power | Economie | East Asia

Reliance on foreign lithography equipment appears as a growing burden on Chinese chipmakers in the face of intense US-led export controls.

To hedge against rising geopolitical and supply chain risks, Washington and Beijing have used industrial policies in recent years to boost domestic semiconductor manufacturing. Although primary manufacturing (or “manufacturing”) is an integral part of chip production and receives most media coverage of the industry, it must be emphasized that the global semiconductor value chain is made up of about 300 different inputs provided by dozens of countries. Lithographic equipment used to manufacture chips is one of the less prominent but critical supply chain inputs.

Lithography – the process of printing integrated circuit patterns onto silicon wafers – also happens to be a notable weakness of the Chinese chip industry, which remains largely uncompetitive in the semiconductor manufacturing equipment (SME) and electronic design automation (EDA) sectors. To slow Beijing’s advances in semiconductors, Washington is currently ramping up extraterritorial restrictions on all inputs containing critical US-origin technology, such as lithography equipment, through the foreign direct product base.

At a Bureau of Industry and Security (BIS) conference in late June, US Commerce Secretary Gina Raimondo announced that Washington could “close down” any Chinese semiconductor company caught selling to Russia because “nearly every chip in the world and in China is made using US equipment and software.” . Several Washington policy analysts have also identified SME and EDA as weaknesses in the Chinese chip industry. In January 2021, the Center for Security and Emerging Technology (CSET) published a report arguing that China’s weaknesses in semiconductor manufacturing equipment (SME), EDA software, chip design intellectual property, and advanced materials presented a “political opportunity” for Washington that could It is exploited with export and investment controls.

Since 2020, Washington has targeted China’s vulnerability to lithography by banning the sale of advanced extreme ultraviolet (EUV) machinery and is currently considering a more comprehensive “factory-by-factory” ban on equipment that would specifically target product manufacturing plants made in China or less. The processing node is 14 nm. This new export control strategy seeks to contain the technological advances of China’s semiconductor industry without slowing the supply of old commodity chips essential to the production of automobiles and consumer electronics.

Washington’s multilateral strategy on export control, or what the Chinese Foreign Ministry calls “coercive diplomacy” and “technological terrorism,” poses a serious threat to China’s chip industry, which lacks domestic alternatives for SMEs and EDA. Shanghai Micro Electronics Equipment Co., Ltd. (SMEE), the leading manufacturer of lithography in China, has developed the block in the 90nm process node and has developed 14nm machines with sub-optimal production rates.

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While these results are remarkable for an industry latecomer, SMEE is still several generations behind the leading global lithography company in the Netherlands, Advanced Semiconductor Materials Lithography (ASML), which produces machines capable of etching circuits for advanced chips of less than 7 nm. Given the enormous technical knowledge and capital spending barriers to compete in the lithographic industry, Beijing’s best option is to continue to purchase from ASML.

During his visit to the Netherlands in late May, US Deputy Secretary of Commerce Don Greaves lobbied Dutch officials to prevent ASML from selling submersible lithography machines, an advanced type of deep ultraviolet (DUV) technology, to China. DUV is a technology older than EUV but remains crucial to the 28nm production line, which is currently a mainstay for Chinese chip leaders such as Semiconductor Manufacturing International Corp. (SMIC). In addition to lithography giant ASML, Washington is also putting pressure on Japan’s Nikon and Canon to limit DUV exports to China.

Even with the restrictions on EUV sales, Chinese chip makers have been able to make significant headway by reusing old DUV equipment through multi-patterning, a technology also used by global manufacturing leaders Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung. For example, SMIC has been able to produce certain specialized chips at the 7nm level, albeit with limited commercial returns, using legacy DUV equipment purchased from ASML. However, the ability of the Chinese semiconductor industry to continue climbing the advanced manufacturing ladder will be severely hampered if Washington succeeds in extending export and investment controls to mature technologies, such as DUV submersible lithography equipment.

Washington’s proposed new restrictions targeting the Chinese chip industry have faced strong opposition from equipment suppliers, including ASML, who argue that mature systems – such as DUV equipment – should not be banned on the same national security grounds as EUVs and other cutting-edge technologies. ASML and other equipment vendors also have strong economic incentives to maintain access to the Chinese market. In 2021, the China-based chip facility purchased 81 DUV, or ArFi, submersible lithography machines from ASML and accounted for 14.7% ($2.7 billion in sales) of the company’s total revenue. If DUV sales to Chinese consumers are banned, ASML will lose about $2 billion in revenue, according to semiconductor consultancy ICWise.

Going forward, these economic realities will increasingly complicate various slide-related national security objectives such as expanding export controls and promoting self-sufficiency.

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