YMTC’s Chip Breakthrough Shows Weakness of U.S. Export Controls

Last year, the U.S. imposed export controls designed to curtail the flow of American chipmaking technology to Chinese semiconductor firms. Soon after, one of China’s top chipmakers, YMTC, was added to the Entity List. Both actions were long awaited, but were they too little, too late? The evidence is mounting and suggests the federal government has much work ahead of it to properly curtail the Chinese semiconductor industry while also bolstering American production.

The latest example comes from TechInsights, which recently reported that it discovered “the world’s most advanced 3D NAND memory chip in a consumer device.” Shockingly, its manufacturer is YMTC—a company with proven ties to the Chinese military. The fact that YMTC can continue to make world-leading chips indicates that U.S. sanctions have not done enough to slow down a company that is both a dramatic national security and economic risk.

This breakthrough also comes on the heels of SMIC’s production of a chip enabling 5G capabilities for Huawei’s new Mate 60 Pro phone. Multiple technology analysts have concluded that SMIC used uncontrolled American chipmaking technologies to produce the chip. “These two examples show that China’s efforts to overcome the trade barriers and build its own semiconductor supply chain are more successful than expected,” TechInsights said. Likewise, Nikkei Asia has reported on how successful Chinese companies have been in circumventing U.S. restrictions, quoting one expert as saying, “It’s not entirely impossible to use less-advanced tools to make more advanced chips. It’s very difficult to have a clear cutoff on which machine can do what.” It’s very possible that YMTC has used older-generation equipment to produce cutting-edge chips.

YMTC and SMIC’s advances have almost certainly been aided by money from The Big Fund – China’s subsidy pool for its semiconductor industry. Earlier this year, YMTC received nearly $1.8 billion in subsidies, and SMIC pocketed $282 million in 2022. The return on investment for the Chinese government has quite likely given the government confidence to keep spending. The Big Fund recently became the main contributor to a $5.3 billion funding round for Changxin Xinqiao Storage Technology (CXST), a producer of DRAM memory chips. Just as the Chinese government has done with DRAM producer CXMT (which also holds a stake in CXST), it is trying to incubate a company that will eventually help to displace Western producers from the global semiconductor market.

Clearly, the U.S. needs to expand export controls – and it needs to move faster – to stop all chipmaking equipment from flowing to China. We also need to cultivate a domestic chip production base, and the CHIPS Act provides a historic opportunity for growth. As China Tech Threat has written extensively, Every Chip Matters, so CHIPS Act funding awards shouldn’t favor one type of chip over another. All are needed.

However, given the Administration’s clear focus on advanced chips, it’s critical to underscore the importance of foundational level (12 nanometers or higher) chips, which are used in everything from everyday consumer devices to defense systems. China continues to strive for dominance in this area, creating a dual economic and national security threat.    

Will enough CHIPS Act funding be allocated for foundational – or legacy – chips? This week, the Wall Street Journal reported that Intel is poised to obtain billions in funding to make secure defense chips. The U.S. military’s chip needs are overwhelmingly at the foundational (or “legacy”) size. Will Intel produce the most essential chips that are the backbone of U.S. defense systems?

Ultimately, U.S. government needs to play both offense and defense: clamp down on the entire Chinese semiconductor industry with export controls and properly disburse CHIPS Act funds to produce the chips most necessary for both defense and civilian purposes.