What does the most ‘Chinese’ smartphone ever tell us about politics?


The author is the author of ‘Chip War’

What is the significance of Huawei’s new smartphone chip? The controversial Chinese telecom company has made headlines as its new Mate 60 Pro phone features a sophisticated homegrown chip. SMIC, the Chinese chip maker with which Huawei has cooperated, has never produced such an advanced semiconductor before.

The chip industry is divided over what this means. On the one hand, SMIC has only succeeded in copying a manufacturing process – called 7 nanometer – that Taiwan’s TSMC, the world’s leading chip maker, was already producing in high volumes in 2018. SMIC is generally half a decade behind TSMC in starting new manufacturing. processes, so by that metric, the Chinese company’s 7nm process has arrived right on time.

Furthermore, to produce Huawei’s chips, SMIC has used DUV lithography machines instead of the more advanced EUV tools, which it has been barred from purchasing. Foreign chipmakers like TSMC and Intel learned to produce 7nm chips with DUV machines years ago before turning to more efficient EUV devices. Thus SMIC’s manufacturing costs are probably only competitive because the Chinese state is footing the bill. The company’s 7nm chip is far from a phenomenal success.

Still, the fact that SMIC has produced millions of such chips is real progress – and proof that American, Dutch and Japanese control is far from undisputed. The Netherlands will continue to allow shipments of advanced DUV lithography equipment until the end of this year. Meanwhile, companies in the three countries and other Western countries continue to send less advanced equipment to China, in addition to key chemicals, gases and chip packaging equipment. The US Congress questioned the logic of China banning the transfer of some equipment but selling the chemicals needed to operate them.

Yet focusing only on the core chip in Huawei’s new phones misses the broader impact: The Mate 60 Pro shows that Beijing is as determined as ever to squeeze Western chipmakers and electronics companies out of the Chinese market.

Replacing imported chips with domestic components has been China’s stated goal since 2014, when it launched its first major semiconductor subsidy fund. Yet, as of now, most phones sold in the country – even those from local brands like Oppo and Xiaomi – are packed with foreign-made chips.

Huawei’s Mate 60 Pro is different: it may be the most “Chinese” advanced smartphone yet. Along with the phone’s primary 7nm processor, many of the phone’s supporting chips are in-house, including Bluetooth, WiFi, and power management chips.

Of course, no one knows whether in a competitive market, Huawei’s domestic suppliers will be able to compete on cost. But when the government is running a self-reliance campaign, the cost matters less. As the new phones hit the market, Beijing announced a new $40 billion fund to subsidize chip makers — one of several in recent years.

The government is also helping with new restrictions targeting the Mate 60 Pro’s primary rival, the iPhone. Huawei’s phone launched amid reports that Chinese government institutions and state-owned companies were discouraging employees from purchasing Apple products.

All this threatens foreign companies that have advocated for stabilizing trade relations between China and the West. As recently as July, U.S. semiconductor CEOs made a pilgrimage to Washington to argue against new sanctions on China. Now their market share is at stake. If the Chinese market appears 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 continue supplying chipmaking equipment and chemicals to China is really in their interests.

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