China’s Tech Industry Shows It Still Means Business

The United States has spent the last two administrations, and certainly the last year of this one, trying to blunt what seems to be aggressive Chinese technology development, especially when it comes to semiconductors, artificial intelligence, and all the other nuts and bolts of the next industrial revolution.

Washington has used executive orders, legislation, ad hoc congressional committees, new regulation, and export controls in a bid to curtail China’s access to these technologies. But if recent Chinese advances are any guide, those efforts have so far fallen short—allowing China to remain within touching distance of the West when it comes to the technologies that will power future economic growth.

Huawei, the Chinese telecommunication giant blacklisted by Washington and many of its allies, recently unveiled a new smartphone with an advanced semiconductor made in China. Made by China’s largest chipmaker, SMIC, the new creation represents a “design and manufacturing milestone,” according to TechInsights, a research firm that conducted a teardown of the device.

Given that Washington has spent considerable time and energy trying to stymie China’s ability to develop advanced semiconductor technology, the development has sparked considerable alarm. The new chip is not just defying U.S. tech bans; it is turbocharged. The smaller the size of the transistors, the more can fit on a chip, and the more powerful it is. U.S. controls aimed to checkmate China at 14-nanometer technology. SMIC’s new creation clocks in at 7 nanometers.

Chinese state media has hailed the development as a geopolitical triumph and proof of the Chinese tech sector’s resilience while warning that Washington would “pay the price” for its “technological arrogance.”

“The resurgence of Huawei smartphones after three years of forced silence is enough to prove that the US’ extreme suppression has failed,” one editorial in the Global Times said. “This also serves as a microcosm of the US-China tech war, reflecting the entire process and foreshadowing the final outcome.”

Rattled by news of the chip, some U.S. policymakers are urging stronger action. A group of Republican lawmakers, including House Foreign Affairs Committee Chairman Michael McCaul, House Energy and Commerce Committee Chair Cathy McMorris Rodgers, and House Select Committee on the Chinese Communist Party Chairman Mike Gallagher, sent a letter last week to U.S. Commerce Undersecretary Alan Estevez calling for greater restrictions on Huawei and SMIC.

“We are extremely troubled and perplexed about the Bureau of Industry and Security’s (BIS) inability to effectively write and enforce export control rules against violators, especially China,” the lawmakers wrote. “The circumstances before us demonstrate the need for additional pressure and more effective export controls on our adversaries.”

The Commerce Department has said it is seeking more information on the “character and composition” of the chip, echoing comments this month by National Security Advisor Jake Sullivan. Sullivan said the United States will continue its current strategy of narrow restrictions on advanced technology rather than broad-based economic decoupling, reiterating the “small yard, high fence” approach he has repeatedly touted. “That is where our emphasis has been. That’s where it’s going to continue, sort of, regardless of the outcome,” he added.

The chip breakthrough in some ways underscores the porosity of that approach; experts say Chinese firms could have stockpiled some chips before the U.S. controls kicked in, used less cutting-edge or efficient methods to achieve the same outcome, or procured components from secondary marketplaces. It’s quite possible the United States will look to leverage additional chokepoints.

“I expect that conversation about tightening controls on Huawei and on SMIC will accelerate, including limits on products like chipmaking chemicals that thus far haven’t been restricted,” said Christopher Miller, an associate professor of international history at Tufts University’s Fletcher School.

Huawei in particular has been a target of U.S. policymakers for more than a decade, with efforts to curb the firm’s abilities and expansion dating back to the Obama administration. The fact that Huawei technology is involved this time around could spur more action from Washington and its allies, said Reva Goujon, a director at Rhodium Group who focuses on China’s industrial policies.

“It’s awfully convenient that it’s Huawei we’re talking about, the most heavily sanctioned Chinese tech firm under U.S. export controls,” Goujon said. “And so that gives the U.S. some leverage.”

Some concern may be warranted. While the goal of Washington’s export curbs has been to set China’s semiconductor industry back, the new smartphone shows that its leading chipmaker may be “at most only a few years behind” global giants such as Samsung, Intel, and Taiwan’s TSMC, according to a recent blog post by the research firm SemiAnalysis.

“This is a significant step for China’s chip ecosystem and the broader electronics industry,” Miller said. “It demonstrates that China’s chipmakers are continuing to progress in their manufacturing capabilities and that China’s leading chipmaker, SMIC, can produce fairly advanced chips at meaningful volume.”

That’s not to say that China is quite up to snuff with its top-tier foreign rivals, Miller said. Both performance metrics and manufacturing methods still lag.

The bigger question is whether the Chinese breakthrough is really that—or a marketing ploy. SMIC reportedly first developed 7-nanometer chips in 2022, even before the Biden administration imposed its export restrictions. But experts questioned its economic viability and scalability. Many of those questions still hang over Huawei’s apparent use of these SMIC chips, said Jon Bateman, a senior fellow at the Carnegie Endowment for International Peace, who said current production appears limited.

“It’s unclear at this point whether the chip in the new Huawei phone represents a serious technological milestone or more of a complicated marketing stunt,” he said, adding: “This is not yet a mass market product.”

The smartphone launch late last month was followed by another significant development, when Beijing granted government approvals for AI chatbots made by Chinese tech giants including Baidu, SenseTime, and ByteDance, TikTok’s parent company, to be released to the public after months of testing and regulatory scrutiny.

China has long held ambitions to become a leading AI power by the end of the current decade, and the runaway success of ChatGPT, launched by California-based OpenAI last November, has sparked a scramble among Chinese firms to develop comparable large language models. (Tencent claimed its chatbot, released this month, was “better” than ChatGPT in certain text and mathematical applications.) But China’s extensive restrictions around online speech have made developing and releasing these chatbots relatively tricky and led to delays in their widespread rollout. Those restrictions, particularly on what data China’s generative models can draw from, are also likely to limit what they can do—but Beijing appears willing to make that trade-off.

“Chinese regulators will always try to get ahead of the risks where they can,” said Anarkalee Perera, a director of technology policy and strategy at the Albright Stonebridge Group who previously worked at ByteDance in Beijing. “If that comes at the cost of delayed commercial rollouts of generative AI apps, that’s a price that the government is willing to pay.”

But Chinese regulators are waving new designs through quicker than expected, a sign that Beijing is leaning a bit more toward innovation right now, Perera said.

China isn’t just playing defense on tech. The Wall Street Journal reported this month that Chinese government officials had been banned from using iPhones at work, prompting U.S. National Security Council spokesperson John Kirby to express “concern” about “aggressive and inappropriate retaliation” on U.S. companies. China’s foreign ministry last week denied that the government had imposed a ban but said it had “noticed” reports of “security incidents concerning Apple phones.”

Chinese hackers have also stepped up their targeting of the U.S. government and citizens in recent months, inserting malware into military bases in Guam, accessing the email account of Commerce Secretary Gina Raimondo, and spreading disinformation about the recent Maui wildfires. China’s recent actions on the cyberfront “suggest a theory of disrupting military mobilization but also of sowing chaos in the United States,” Mieke Eoyang, the U.S. deputy assistant secretary of defense for cyberpolicy, told reporters last week.

But China might hit the wall before it breaks the tape. In the coming months, worsening economic headwinds could complicate efforts to accelerate technological development, given mounting uncertainty from a real estate crisis, ongoing debt challenges, and soaring youth unemployment. For the first time in two years, consumer prices dropped in July, fueling fears of deflation.

“A big factor here is China’s ailing economy, which does not augur well for future technological progress,” Bateman said.

China may have shrunk its transistors—but it is also shrinking its economic growth rates and future prospects. That will make it harder to out-tech the West.

“You have to ensure you have access to critical technologies,” Goujon said. “It’s getting harder and harder for Beijing to talk around the macroeconomic headwinds.”