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Since the onset of the tech war instigated by the United States in 2018, the focal point of this confrontation has predominantly been centered around semiconductors. The United States has astutely identified this critical area, particularly due to the vulnerabilities present in its own position concerning chip manufacturing. Semiconductors are intrinsic to the information technology sector, essentially functioning as the backbone of the digital economy. When the supply of chips is constrained, it can considerably hinder not only technological advancement but also national security interests.

Initially, the U.S. targeted Huawei, a major player in telecommunications technology, but this action reverberated throughout the entire industry. This marked a pivotal shift in the strategy of various tech enterprises; many began to recognize the fragility of relying solely on external procurement. It also signaled the start of an urgent need for self-sufficiency in the semiconductor domain. The urgency for innovation and domestic production became apparent at that juncture.

Huawei took the lead in this endeavor, feeling a pronounced sense of existential threat from the sanctions. The company initiated its backup plan for HiSilicon, its semiconductor arm, and by the time the MATE60 was launched in 2022, it had surmounted one significant hurdle. Fast forward to this year with the unveiling of MATE70, it appears that the company has significantly advanced through the challenges, akin to a boat that navigated treacherous waters to reach calmer shores.

Recent reports have confirmed that the MATE70 is equipped with 100 percent domestically produced chips. The Kirin 9020 chip, representing cutting-edge technology, operates at an almost-equivalent 5nm manufacturing process. This achievement signals significant progress toward ensuring the nation’s strategic security in semiconductor manufacturing.

The MATE60, released last year, has reportedly sold over 14 million units within a year—a remarkable figure that underscores the demand and consumer acceptance bolstered by domestic chips in production. The sheer volume of semiconductors embedded in these devices, ranging from dozens to hundreds per unit, has effectively addressed production scalability issues. To put this into perspective, the potential to utilize over a billion chips in drones and military equipment during times of conflict indicates a solid foundation for national security.

This year has presented an apparent shift in circumstances; while advancements in the most sophisticated processes may seem limited, improvements in production quantities and yield rates are substantial. These trends are also reflected in trade statistics. According to the customs data released by China for the first eleven months of 2024, exports of integrated circuits reached approximately 1.03 trillion yuan, marking a 20.3% increase. The import side shows a similarly upward trajectory, with imports of integrated circuits rising to 501.47 billion units, a respective increase of 14.8% valued at 2.48 trillion yuan—growing by 11.9%.

On the face of it, these figures might not resonate with many, but the critical backdrop is the persistent pressure exerted by the United States through sanctions and trade restrictions. The notable uptick in China’s semiconductor production, with output soaring from about 174 billion units in 2018 to over 353 billion units in the first ten months of 2024, reflects the resilience and adaptability of the industry despite external challenges.

The impact of U.S. sanctions has backfired, inadvertently catalyzing advancements within China’s semiconductor industry.

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The United States is undoubtedly aware of China's progress but feels somewhat ineffectual in countering these developments. U.S. Secretary of Commerce Gina Raimondo’s visit to China coincidentally overlapped with the MATE60's rollout. Upon her return, she expressed feelings of humiliation—a sentiment that underscores the striking disparity between the two nations’ achievements in technology.

Labeling this scenario as a humiliation might be an overstatement; it is more akin to a wake-up call. While the U.S. has not yet taken stringent retaliatory measures, it has tightened restrictions against the Chinese tech sector, even coordinating with the Netherlands to impose limits on lithography systems, a crucial component for chip manufacture, resorting to outrageous actions deemed as denying after-sales services.

However, the evidence of momentum within China’s semiconductor industry is undeniable, a tide that cannot be easily halted.

The progress in the semiconductor sector has fortified China's stance against incessant U.S. sanctions. Previously, there may have been a tendency to endure and bide time, but we are now witnessing a strategic exit from this state of being. In light of escalating hostilities, China has commenced responses that indicate a readiness to retaliate decisively. Recently, when the U.S. intensified its semiconductor controls, placing 140 firms on the “entity list,” a swift counter-move was made by China as it announced a ban on specific dual-use items intended for military applications destined for U.S. entities. Furthermore, collaborative voices from industry associations urge caution in procuring American chips.

This moment signifies a clear declaration of intent that China is prepared to break through in the semiconductor arena.

According to industry data, over 75% of the global semiconductor market share is held in mature processes, specifically 28nm and above, while China has now achieved capabilities in 7-5nm technology. Advancements that may further lower process nodes will hinge critically on breakthroughs in extreme ultraviolet (EUV) lithography technology.

Notably, the current gap primarily remains at the sub-5nm scale, with applications still predominantly centered around consumer electronics, particularly smartphones, alongside cutting-edge artificial intelligence computational chips which are largely operating within the 7-5nm spectrum. This indicates that while certain high-tech areas remain competitive, there is a substantial measure of sufficiency in existing chip processes.

The next phase will be dictated by how the supply chain is managed. As Huawei’s chip production becomes entirely domestically sourced, the focus then shifts to how this supply chain can progressively be opened to other manufacturers, including competitors in mobile and automotive sectors.

The potential for subsequent disruptions in the U.S. tech landscape, particularly with giants like Qualcomm and Intel, could precipitate a faster adoption of Chinese alternatives. However, as of now, many companies hesitate to take significant leaps, though the foundation to facilitate this transformation erodes with every passing day.

Should the U.S. take aggressive measures that ultimately backfire, optimistic projections suggest that within three years, China’s semiconductor industry could enter a phase of comprehensive breakthroughs. The hope is for the U.S. to recognize this evolution, rather than adopting complacency that benefits nobody.