NVIDIA, Once Involved in Smuggling, No Longer Needed? ... China Strikes Back Against US Sanctions [Chip Talk]

Chinese Authorities Introduce Environmental Regulations Targeting H20 Chips
AI Chip Self-Sufficiency... Direct Development of Lithography Equipment
World's Largest 'Semiconductor Equipment Investment' This Year
Chinese Semiconductor Technology... Already Surpassed Korea

Is the U.S. sanction strategy aimed at blocking China's advanced industry development effective? In the semiconductor industry, there are even claims that U.S. policies have accelerated China's technological advancement. At one point, there were talks of smuggling Nvidia semiconductors, but now, the U.S. is actually regulating Nvidia chips.

China's confidence cannot simply be dismissed as bluster. Evaluations from domestic research institutions also show that many experts believe China's semiconductor technology has surpassed Korea in most fields.

"Don't Use Nvidia Chips" ? Chinese Authorities Suddenly Impose Regulations

According to the Financial Times (FT), China's National Development and Reform Commission (NDRC) recently began regulating domestic companies to use energy-efficient semiconductors when constructing or expanding AI data centers. This is widely seen as a regulation targeting Nvidia's H20 chip.

The H20 chip is currently the most widely used AI chip in China. As the U.S. controls exports of advanced semiconductors to China, Nvidia released the lower-spec H20 chip instead of its flagship H100 chip. Until early this year, there were frequent rumors that China was smuggling H20 chips.

This regulation was initially introduced in the second half of last year. However, it lacked legal force and thus no substantial sanctions were enforced until recently, when authorities changed their stance. Although specific criteria have not been disclosed, the H20 chip, which consumes 400 watts per hour, is reportedly classified as a prohibited item.

An industry insider commented, "China's move to strengthen regulations targeting Nvidia reflects confidence that their semiconductor capabilities have reached a level of self-sufficiency," adding, "It is a message shown to the U.S."

'AI Chip' Developed Independently... Even Lithography Equipment Achieves 'Self-Reliance'

China is focusing on expanding 'continental semiconductors' to reduce dependence on Nvidia. Ant Group, an Alibaba affiliate, has started developing the AI model 'LingPlus' using semiconductors developed by Huawei. Although the specific semiconductor used has not been disclosed, the industry believes the 'Ascend 910' chip was employed. The Ascend 910 chip was also used during the development of DeepSeaK's R1 model.

After U.S. sanctions intensified, Huawei began mass production of the improved '910C' chip. This AI chip for inference models is known to have performance comparable to Nvidia's H100 chip.

China has even started manufacturing lithography equipment, considered the 'Maginot line' of technological self-reliance. The lithography equipment market is monopolized by the Dutch company ASML, and exports of EUV (extreme ultraviolet) equipment necessary for cutting-edge processes have been completely banned to China since 2019. Restrictions on DUV (deep ultraviolet) equipment are also expanding.

Chinese semiconductor equipment maker Sicaire unveiled its self-developed DUV lithography equipment for the first time last month at the semiconductor exhibition 'Semicon China' held in Shanghai. Although EUV equipment is required from the 7nm process onward, China claims to have produced 7nm chips used in Huawei products using only DUV equipment since 2023.

Huawei announced that it has developed EUV equipment essential for advanced processes and will begin trial production in the third quarter of this year. It also released a roadmap to introduce mass production of semiconductors next year. While there is debate over the authenticity of these claims, if China has indeed secured EUV equipment technology, it poses a significant threat to the global semiconductor industry.

'Continental Semiconductor' Rise... Backed by Powerful Government Capital

The semiconductor industry evaluates that excessive U.S. restrictions have paradoxically fostered China's manufacturing capabilities. An industry insider said, "The U.S. underestimated China," adding, "The government tightened control over companies more strongly and promoted 'patriotic consumption' to mobilize the vast domestic market."

Chinese President Xi Jinping established the national strategic plan 'Made in China 2025 (MIC 2025)' in 2015. The core goal is to transform from being the 'world's factory' to a hub producing higher-value products and services. This initiative involved massive government capital investment and is bearing fruit by 2025.

Government subsidies have been concentrated in research and development (R&D). According to the U.S. Center for Strategic and International Studies (CSIS), China spent more than 1.7% of its GDP on industrial policies from 2017 to 2019. Applying this ratio, it is estimated that $3 trillion, or approximately 4,400 trillion Korean won, has been invested over the past decade.

Especially, according to data submitted by the Semiconductor Industry Association (SIA) to the U.S. Trade Representative (USTR), the Chinese government has invested over 140 trillion Korean won in the semiconductor industry through subsidies and funds over the past ten years.

China also leads globally in semiconductor equipment investment. According to the Semiconductor Equipment and Materials International (SEMI), China's semiconductor equipment investment this year amounts to $38 billion, the largest in the world. This significantly surpasses South Korea ($21.5 billion), Taiwan ($21 billion), and the U.S. ($14 billion), all considered advanced semiconductor countries.

Korean Government Holds Back... Will K-Semiconductors Lose to China?

As a result, China has caught up with or surpassed South Korea's semiconductor technology, once considered world-class, in many areas. According to a brief titled 'In-depth Analysis of Technology Levels in Three Game-Changer Fields' published by the Korea Institute of Science and Technology Evaluation and Planning (KISTEP) in February this year, a survey of 39 domestic experts showed that as of last year, Korea's foundational semiconductor technology capabilities lagged behind China's in all fields.

Unlike China, Korean companies are struggling without government support. Government subsidies are virtually nonexistent, and the '52-hour workweek limit' hampers efforts to strengthen R&D capabilities. The Korean government's semiconductor support measures are limited to low-interest loans, tax credits, and infrastructure support, mostly indirect assistance.

Young-Hyun Jeon, Vice Chairman and CEO of Samsung Electronics' Device Solutions Division, acknowledged at Samsung Electronics' regular shareholders' meeting in mid-last month that "Chinese companies are rapidly catching up in memory and foundry sectors." He added, "Even if key developers want to work overtime or focus more on research time, the '52-hour workweek regulation' prevents flexible responses to development schedules, which is the current situation."