SMEE's 28nm Litho Machine Shows Beijing's Ability To Break West's Bans On Advanced Tech

China's Shanghai Micro Electronic Equipment (SMEE), a U.S.-blacklisted chip company, is reportedly poised to deliver the country's first home-grown lithography machine capable of producing 28-nanometer chips by the end of the year. Experts say it could be the first big step toward Beijing's aim to become self-sufficient in semiconductor technology amid export bans on advanced technology imposed by the Biden administration.

Local media reported earlier this month about SMEE's "breakthrough." In addition to putting China in a better position in its technology war with the U.S., delivering a home-grown lithography machine for legacy chips like the 28nm chip could help the country achieve self-sufficiency (in advanced technology), geopolitical analyst and international relations specialist Linjie Chou Zanadu told International Business Times.

"The development could boost China's tech industry and innovation ecosystem," and it could also "reduce China's vulnerability to supply chain disruptions caused by U.S. export controls," he said.

The most advanced semiconductors today are the 3nm and 5nm chips produced by global leader Taiwan Semiconductor Manufacturing Co (TSMC). The Taiwanese company is now in the early stages of developing even more advanced 2nm chips, which it plans to make starting 2025. Rival Samsung Electronics also has plans to mass produce 2nm chips in 2025.

Each new generation of chips brings advances in speed and efficiency and reduces power consumption, enabling device makers to build new generations of products and incorporate cutting-edge features that require more computing power — like artificial intelligence — into their products.

But legacy chips, like the 28nm ones SMEE's litho machines can produce, are still important in several sectors, like the fast-growing electric vehicle industry.

The U.S. banned exports of advanced integrated circuits to China in October last year, citing national security concerns. In further efforts to contain China's access to advanced technologies that can also be used for developing military technologies and weapons, Washington co-opted Japan and the Netherlands in announcing related bans on technology. The Netherlands announced in March export controls that will block the sale of its "most advanced" printing machines to China. Later in the same month, Tokyo announced restrictions on exports of 23 types of chip manufacturing equipment to China.

The Biden administration did not ban equipment related to legacy chip production, prompting China to invest in 28nm chips that are still crucial in building smartphones and even military hardware. Also, Dutch chip equipment giant ASML continues to supply China with less advanced lithography machines that are able to produce older chips.

That gap in the western technology control regime could close, making SMEE's achievement even more important for Beijing. Commerce Secretary Gina Raimondo expressed concern over China's investments into legacy semiconductors. "The amount of money that China is pouring into subsidizing what will be an excess capacity of mature chips and legacy chips – that's a problem that we need to be thinking about and working with our allies to get ahead of," she said.

Genevieve Donnellon-May, research associate at the Asia Society Policy Institute (ASPI) and the Asia Society Australia and a non-resident researcher at the Oxford Global Society and The Red Line, told IBT that a Chinese 28nm-capable machine could help reduce Beijing's "dependency on wafer fab equipment."

Wafer fabrication equipment come in various forms – diffusion systems, etching tools, oxidation systems, etc. – and are critical in the semiconductor manufacturing process.

If China manages to close the technological gap in chip production through the production of its own 28nm chips, it could also accelerate the country's work in other cutting-edge technologies such as AI, autonomous vehicles and 5G, considering how advanced chip manufacturing is crucial for such technologies, analyst Zanadu said.

Donnellon-May added that as China continues to develop its own chips, demand will also rise significantly. The average price of an imported chip costs around 20 yuan (approximately $2.74) while a Chinese chip costs around 200 yuan (approximately $27.44), she said. As demand for homegrown chips increase, prices will also drop, especially as their performance improves over time.

Chinese state media said that the industry's achievement in building a 28nm lithography machine is proof that Washington's curbs are "ineffective." China championing SMEE's achievement is just part of Beijing's "wolf warrior attitude," Zanadu said, refering to a style of brash and combative manner of dealing with diplomatic issues adopted by China under Xi Jinping.

That style of diplomacy received a recent boost as Wang Yi returned as the Chinese foreign minister -- following incumbent Qin Gang's unexplained disappearance from public view. Wang is dubbed President Xi Jinping's "trusted old hand" and is known for his practice of "wolf warrior diplomacy."

During U.S. Secretary of State Antony Blinken's visit to Beijing in June, Wang told the former that the root cause of tensions between the two sides is "U.S. misperceptions toward China." The veteran foreign minister said Washington should "stop suppressing China's scientific and technological advances."

With the recent developments in China's bid for chip self-sufficiency, it can be safe to conclude that U.S. tech curbs "are indeed ineffective," at least so far, ASPI's Donnellon-May said. Analysts previously said China can develop "really important products" even if it uses old technology, such as the 28nm chips used in consumer electronics.

There have been concerns that Washington's attempts to cut off China's access to advanced semiconductors will backfire.

By making it impossible for Chinese companies to obtain high-end chips and equipment, Washington has also made it a massive challenge for Western firms to obtain cheaper chips. "The U.S. created this problem for itself," Donnellon-May pointed out.

Meanwhile, China is reportedly planning to spend around 50 billion yuan (approximately $7.26 billion) to boost its domestic chip supply chain. Already last year, there was an apparent boom in Chinese semiconductor factories using domestic equipment. Around 35% of Chinese chip-making factories used domestic equipment, compared to 21% in 2021.

Huge hurdles still remain in China's way to achieving chip self-sufficiency, such as delivering lithography machines in bulk. But for now, it appears Beijing is betting on companies like SMEE to drive its self-sufficiency push.