A surprise inside

Huawei's new phone is a win for China

It is rare that the release of a new model of a mobile phone can provoke a rethink of major geopolitical and geo-economic strategies. But that is likely to be the fallout of the new Mate 60 Pro handset, released in recent days by China’s flagship mobile phone manufacturer, Huawei Technologies. The new handset — priced aggressively in its home territory, at a sharp discount to equivalent models from Apple and Samsung — will no doubt be evaluated by the market on the basis of its capabilities. But whether or not it is a commercial success is irrelevant to its broader impact, which will be based on what is concealed within its case.
 

It is powered, according to those who have already dissected available models, by a new Kirin 9000s chip. While it has not been explicitly discussed in public by Huawei, the phone appears to be able to use indigenously produced technology to access 5G networks. Preventing this development had been a stated objective of export controls imposed by the United States in recent years. The entire structure of export controls, restrictions, and sanctions was meant to at least delay this development as long as possible; but it seems that the Chinese electronics establishment has been able to circumvent these efforts with minimal effort and in a much shorter timeframe than earlier anticipated.
 

The US’ efforts focused on keeping Chinese technological abilities in the semiconductor field at chips larger than 14 nanometres (nm), which are about eight years behind the Western (and Taiwanese/Japanese) technological frontier. Through the release of the Mate 60, China has demonstrated it can produce at least a certain number of 7nm chips, which are five years or so behind. This development will have been led by state-owned Semiconductor Manufacturing International Corporation, or SMIC, shares of which raced upwards in Hong Kong on news of the Mate 60’s processing power. SMIC has been on various export control and licensing lists since at least 2020; but it has been widely reported that multiple new semiconductor fabrication facilities under different names are being built across mainland China. These are presumably controlled by SMIC but, given their varying names, may be able to evade sanctions and blacklist.
 

SMIC has an enviable war chest, estimated at about $30 billion, for its technological catch-up. US-based groups that lobby on behalf of its electronics industry estimate that 23 such facilities are being built or are planned on the mainland, with an investment of possibly as much as $100 billion. Government support within the country may be larger in dollar terms than in the rest of the world combined. Earlier expectations that Chinese efforts would focus on larger and older chips — over 28nm — clearly did not take into account Beijing’s level of ambition in the sector. Export controls are clearly too easy to evade in practice or less effective in general than earlier predicted. Depending on which of these is the case in reality, they may need to be sharpened or abandoned for some other mechanisms. Matching the level of state subsidy that China is willing to pour into the sector is clearly impossible. There is some hard thinking to be done in Washington and in other capitals, including New Delhi, that have invested political capital in either containing or replacing China.