Korva is a scroll of the internet’s best ideas.
Chip export controls may backfire
China's hardware limits
China's labs are hardware constrained, and they have been trying to import chips on the black market, which The Information recently reported. The United States has the best chip ecosystem in the world, and keeping Nvidia, TSMC, and newer companies like Etched ahead is a national security necessity worth government protection.
Two ways to play it
There are two ways to play it. In world A, the US addicts everyone to American hardware, so money flows into America and competition in China is crushed. In world B, the US cuts China off for the short or medium term and keeps its lead by starving Chinese labs of the resources they need.
The downside
The downside of export controls is that China is really good at building hardware, and being cut off incentivizes it to build its own ecosystem.
How do export controls restrict chips?
In October 2022, the US Commerce Department's Bureau of Industry and Security issued rules limiting exports of advanced AI chips and chipmaking tools to China, using thresholds on performance and interconnect speed. Nvidia then designed reduced versions of its chips, the A800 and H800, to fit under those thresholds. Updated rules in October 2023 tightened the thresholds and covered those versions as well.
Why is TSMC so central to chips?
Taiwan Semiconductor Manufacturing Company is a contract chipmaker: it manufactures chips designed by other companies, including Nvidia and Apple. Morris Chang founded it in 1987 on the idea that a company could make chips for others without designing any of its own. That model let design-only firms, called fabless companies, grow without building their own factories. Making the most advanced chips requires equipment from the Dutch firm ASML, whose extreme ultraviolet machines have no commercial rival.
How has China built chips under sanctions before?
In August 2023, Huawei released the Mate 60 Pro phone with a Kirin 9000S chip made by the Chinese foundry SMIC, a chip that analysts examined and described as a 7-nanometer-class design. It was produced with older deep ultraviolet lithography equipment, using multiple exposure steps instead of the newest machines. Producing it that way costs more per chip and yields fewer good ones. China has also directed large state funds toward domestic chip firms, including the Big Fund established in 2014.
More from 20VC with Harry Stebbings
