(Bloomberg) -- Sitting on a Boeing 737 en route to Beijing for talks with Chinese President Xi Jinping and other top officials, Jake Sullivan thought there was a reasonable chance that Huawei Technologies Co. would roll out a new phone or AI chip during his visit in a bid to embarrass him.
That’s exactly what the Chinese telecommunications giant did last year when US Commerce Secretary Gina Raimondo — one of the key people responsible for implementing strict US tech curbs spearheaded by Sullivan — visited the Chinese capital. Memes on Chinese social media sarcastically branded her a “Huawei ambassador.”
Yet for US officials, who asked not to be identified discussing sensitive diplomatic relations, any Chinese moves would amount to little more than a propaganda exercise. They described the technical aspects of Huawei’s phone as mediocre compared with all the fanfare, and said the US efforts to maintain a technological edge on China are working — no matter what Beijing says.
While Raimondo has said she needs more tools to ensure her agency can better punish those who violate US export controls, Sullivan — President Joe Biden’s national security advisor and the architect of US tech curbs — said the overall impact of the American efforts shows the policy is successful, even if loopholes still exist.
“Enforcement’s important,” he said in an interview on the plane before his meetings in Beijing. “But for me it is not as defining of the future of the technology landscape as the set of consequential actions that we have taken, and will continue to take.”
While Huawei didn’t unveil any technological breakthroughs during Sullivan’s trip, the US tech curbs were discussed at length in a three-day visit that included around 10 hours of talks with Foreign Minister Wang Yi in addition to the conversation with Xi..
“We had a vigorous give-and-take on the issue,” Sullivan said at a press briefing in Beijing on Thursday. “Obviously we didn’t come to agreement on certain aspects of things, but I think the dialogue is very useful.”
The discussions took place right as the US actively negotiates with Dutch and Japanese officials to further restrict Beijing’s ability to produce advanced semiconductors, in a new round of measures set to be announced this fall. The US has also banned China from buying the most advanced AI accelerators from Nvidia Corp. and Advanced Micro Devices Inc.
The Biden administration’s efforts to curtail Chinese access to technology needed to make high-end semiconductors are now one of the biggest flashpoints in the relationship. And the US restrictions are likely to continue being strengthened no matter who takes power next January.
“It is hoped the United States will work with China to meet each other halfway,” Xi said as the meeting began, according to state broadcaster China Central Television. He urged Washington to view his nation’s progress with a “rational attitude.”
China views the US measures as an effort to contain the rise of the world’s second-biggest economy, and Xi has poured money into achieving technological breakthroughs. Huawei, which is building a $1.4 billion semiconductor research and development center in Shanghai, also has come up with its own Ascend chips as an alternative to rival Nvidia’s chips.
Yet without gear from Netherlands-based ASML Holding NV, it will be virtually impossible for Huawei and its partner Semiconductor Manufacturing International Corp. to make significant advances in their current capability, which lags two generations behind industry leader Taiwan Semiconductor Manufacturing Co.
‘Up Our Game’
The US measures, taken in concert with the Netherlands and Japan, have put a ceiling on what China can do, according to one senior US official. Still, the rules aren’t perfect, making it necessary to continuously update them: China, for example, has stockpiled a record amount of semiconductor equipment.
“Stockpiling is a challenge but there’s a clock on it,” Sullivan said in the interview. “And not only because of servicing and components, but because of degradation of the capability of return. So it is absolutely not too late for us to up our game collectively on semiconductor manufacturing equipment, and that’s what we’re driving to do.”
Chinese officials complain about the US actions as much as they insist the measures aren’t working. American officials see that as a sign of anxiety — and proof that their policy is having the intended effect.
In his meeting with Wang, China’s top diplomat, Sullivan said the US will continue to take necessary actions to prevent advanced US technologies from being used to undermine its national security. Wang on the other hand called for “clear boundaries for national security,” using language to indicate China sees the US as going too far in restricting trade.
Chip Controls
In Beijing, the US officials pushed back against Chinese claims that the tech curbs amount to containment, calling them a reaction to the Communist Party’s efforts to integrate national security into its economy with a so-called military-civil fusion strategy. If the US really wanted to contain China, one official said, it would look and feel very different, more similar to relations with Russia during the Cold War.
At the same, the US wants to do enough to prevent China from catching up, particularly when it comes to military applications. According to a senior US official, China currently isn’t able to obtain enough high-end chips to pursue its national security goals and drive the most advanced artificial intelligence models.
China could find ways around the US and allied controls by using the tools it has access to, but without the most advanced extreme ultraviolet machines, known within the industry as EUVs, “the yield is going to kill you,” ASML’s former CEO Peter Wennink told Bloomberg in an interview earlier this year.
The Huawei phone unveiled last August is an example of that, the US officials said. They saw the device, which was widely celebrated in China as a breakthrough for Huawei and SMIC, as underwhelming in technical capabilities and more of a propaganda tool to fight back against US curbs.
The Mate 60 Pro contained an advanced, made-in-China 7-nanometer chip. While that chip is still at least two generations behind the most cutting-edge technology commercially available, China’s state media said the component showed US sanctions will not deter China’s technological progress.
The talks this week allowed the US “the opportunity to explain what it is that we are doing and what we are not doing,” Sullivan said at the briefing. “And I thought that was valuable.”
--With assistance from Debby Wu, Josh Xiao and Cagan Koc.
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