The development of an advanced microprocessor by Huawei Technologies shows how determined and capable China is to counter U.S. sanctions, but observers said that the efforts are expected to be very expensive and may lead Washington to tighten restrictions.

During U.S. Commerce Secretary Gina Raimondo’s unannounced visit to China last week, Huawei launched the most recent Mate 60 Pro smartphone. The government is preparing a new $40 billion investment fund to support its growing chip business.

According to a disassembly by Ottawa-based TechInsights, the Mate 60 Pro is powered by its own proprietary chip Kirin 9000s and made by the nation’s leading contract chipmaker SMIC using cutting-edge 7 nanometre (nm) technology.

China is making progress in the development of high-end semiconductors, according to its discoveries and early customers’ assertions about the phone’s potent performance, even as Washington has tightened sanctions in recent years to prevent it from accessing sophisticated chipmaking equipment.

It “demonstrates the technical progress China’s semiconductor industry has been able to make without EUV tools. The difficulty of this achievement also shows the resilience of the country’s chip technological ability,” TechInsights analyst Dan Hutcheson said.

Extreme ultraviolet lithography, or EUV, is a process used to create 7 nm or more sophisticated semiconductors.

“At the same time, it is a great geopolitical challenge to the countries who have sought to restrict its access to critical manufacturing technologies. The result may likely be even greater restrictions than what exist today.”

According to Jefferies analysts, TechInsights’ findings could lead to an investigation by the Bureau of Industry and Security of the U.S. Commerce Department, further discussion about the efficacy of sanctions in the U.S., and even more severe tech sanctions in a competition bill that Congress is drafting against China.

“Overall the US-China tech war is likely to escalate,” they said in a note.

There were no comments available on the issue from the U.S. Department of Commerce and Huawei, as well as SMIC and China’s State Council, which handles press queries on behalf of the Chinese government.

SMIC had previously been known for producing the most cutting-edge chips at 14nm, but Washington prevented it in late 2020 from acquiring an EUV facility from Dutch company ASML.

TechInsights, however, claimed last year that it thought SMIC had produced 7 nm chips by modifying simpler DUV devices that it could still readily acquire from ASML.

According to several analysts, including Jefferies, it was also possible that Huawei had purchased the technology and manufacturing tools from SMIC rather than working together to create the chip.

The manufacturer of the chip, Gavekal Dragonomics analyst Tilly Zhang criticised the achievement, pointing to a low yield rate that lowers the number of usable chips from each wafer and drives up costs as well as new export restrictions imposed by the Netherlands that will prevent SMIC from using more immersion DUV machines.

“They have just demonstrated that they are willing to accept much higher costs than are normally considered worthwhile … It is only the combination of Huawei’s own large financial resources and generous government subsidies that could allow it to sell phones using these chips at normal market prices,” Zhang said.

As the nation steps up attempts to catch up with the United States and other rivals, Reuters reported on Tuesday that China is getting ready to launch a new state-backed investment fund that intends to gather roughly $40 billion for its chip business.

According to certain research companies, SMIC’s 7 nm process would only allow for shipments of only 2-4 million chips, which would not be enough for Huawei to reclaim its prior position as the market leader in smartphones. This is in contrast to the industry standard of 90% or more.

While it might be difficult for Huawei to handle that volume with 7 nm CPUs built in China, Jefferies analysts estimate Huawei is ready to launch 10 million units of the Mate 60 Pro.

In that instance, 10 nm chips might be used, but with an estimated 20% yield—the number of functional chips on each silicon wafer—it would fall well short of the 90% for most consumer devices.

“The (U.S.) controls are imposing high costs for producing controlled technologies in China,” said Doug Fuller, a chip researcher at the Copenhagen Business School, adding that the Chinese government was likely footing the bill.

(Adapted from ThePrint.in)