Could China’s photonic chips help it leapfrog US on AI?

Executives from Dutch technology giants ASML and NXP will join a trade mission to China next month, as the Netherlands seeks deals with the Asian nation while also contending with US efforts to pare its hi-tech exports to the country.In total, 17 officials from Dutch companies will join Trade Minister Sjoerd Sjoerdsma on the trip to Beijing, the South China Morning Post reported on Wednesday, citing an unidentified person. Executives agreed to make the trip on condition that Sjoerdsma doesn’t raise human rights issues or Taiwan arms sales, the person said.Sjoerdsma has this week lobbied against attempts in the United States to expand export controls on semiconductor equipment sales to China, including meeting Commerce Secretary Howard Lutnick. The Match Act being considered by Congress would force US allies to follow US export rules as part of efforts to maintain the nation’s lead in Artificial Intelligence (AI). Restrictions would particularly hit ASML, the world’s only maker of the most advanced chipmaking gear.The Dutch trade delegation will make a four-day visit starting on July 6, which will probably include a meeting with Chinese Commerce Minister Wang Wentao. Sjoerdsma was removed from a China sanctions list in April after previously being banned from travelling to the country for criticising alleged human rights abuses in Xinjiang.Nexperia, the chipmaker at the centre of a Netherlands-China row, will not be part of the delegation. The Dutch government seized the business last year. China-based owner WingTech is suing to regain control.ASML is unable to sell its most advanced extreme ultraviolet (EUV) lithography machines in China because of US export controls covering technologies used inside them. The Match Act would prevent the sale and maintenance of less advanced equipment as well.The Dutch company declined to comment on the trade trip. Chipmaker NXP didn’t reply to SCMP questions.Separately, the Netherlands, the European Union, Germany and Greece this week joined Pax Silicia, a US-led effort to exclude China from AI chip supply chains.Related news: US Treasury Secretary Scott Bessent said “the biggest risk in AI is China getting ahead of us”, rather than concerns about safety or job losses. “The reason the Chinese are willing to have a discussion on AI is because we are ahead, so we have to stay ahead,” he said on Tuesday in New York. The US and China agreed to hold formal talks on AI governance following a presidential summit last month. The US must lead in sectors such as AI, quantum computing, shipbuilding and critical minerals, Bessent said. He also said that attempts to “weaponise supply chains” would face retaliation, without specifically mentioning China. China’s Premier Li Qiang pushed back against a Western narrative of “China Shock 2.0” and said that innovation rather than unfair competition is driving the nation’s export boom. “What China’s technologies and products in emerging fields bring to the world is not a shock, but an opportunity; not a threat, but empowerment,” he said in Dalian on Wednesday at the opening of the World Economic Forum’s Annual Meeting of the New Champions, also known as “Summer Davos”. China’s competitiveness was the result of hard work and a massive domestic market, rather than subsidies, Li said. Zhipu AI is weighing a Hong Kong stock sale, potentially worth several billion US dollars, after its shares surged 20-fold within months of a January initial public offering (IPO), Bloomberg News reported on Thursday. The AI model maker is working with advisers on a placement, which could happen as soon as next month, the newswire said, citing people familiar with the matter. A six-month stock lock-up following the US$558 million IPO expires on July 8. The company’s valuation surpassed HK$1 trillion (US$128 billion) on Monday following a bullish report from investment bank JPMorgan. Founder Tang Jie said last week that a Chinese AI model capable of matching Anthropic’s flagship Claude Fable 5 could arrive this year. How others reported it Diplomatically savvy: ASML is accustomed to diplomatic tangles because of the importance of its equipment for leading-edge chips, [Ben Barringer, head of technology research at Quilter Cheviot] said, a situation that means the company can’t favour one country over another. “It’s got to maintain relationships with the Chinese. It’s not just about siding with the US,” Barringer said. (The Wall Street Journal) Limited impact: Researchers have argued, with justification, that the EU can exploit a variety of Chinese dependencies on Europe. But [a simulated trade] war game suggests that even with the ASML threat there remains what one participant called a “timeline disconnect” in a high-level trade conflict. Cutting China off from lithographic machinery might have some limited impact in a few months, but Beijing can weaponise rare earths severely to hurt European car production within weeks. At that point any EU stomach for a fight would surely develop severe indigestion. (Financial Times, opinion) Under the thumb: The dilemma reflects the fact that European countries like the Netherlands are increasingly unable to make purely economic decisions in their trade relations with China, as they are constrained by US policy pressure and alliance-based mechanisms, [said Yang Chengyu, an expert on European affairs at the Chinese Academy of Social Sciences and deputy secretary general of its AI research promotion centre]. While the Netherlands and its tech companies are seeking to strike a balance under these constraints – given the importance of the Chinese market to their hi-tech exports and global competitiveness – continued accommodation of coercive external pressure could ultimately undermine their own long-term interests, Yang [said]. (Global Times) Legacy tools: China is increasingly able to make more advanced chips with legacy tools, so the US concerns [about a EUV possibly being in the country] may reflect Chinese engineering progress rather than any lapse in ASML’s compliance with export controls. (Bloomberg Intelligence) Strategic costs: For Brussels, joining Pax Silica increasingly looks less like a technology decision and more like a geopolitical one. If Washington is embedding AI into the architecture of its alliances, remaining outside that framework carries strategic costs. The initiative connects several areas that the Trump administration now treats as part of a single policy agenda: defence, trade, critical minerals and advanced technology. That broader context helps explain why the EU is moving closer to a project it initially approached with caution. (Decode39) The SCMP Plus takeawayThe Netherlands’ success in the tech sector has put it in a geopolitical squeeze.Central to the plot is ASML, Europe’s most valuable company and the world’s only maker of extreme ultraviolet (EUV) lithography machines, used to make high-end computer chips. These super-precise machines can print with a resolution thousands of times narrower than a human hair.Under US pressure, the Dutch government banned ASML from selling its most advanced machines to China in 2019 to help preserve the West’s lead in developing Artificial Intelligence (AI) chips. Now US lawmakers are seeking to tighten the screws further with the Match Act. This would prevent ASML from selling lower-end machines to China and, more importantly, bar maintenance of units already in the country.The Netherlands is leading European opposition to the legislation, arguing that it infringes on allies’ sovereignty by forcing them to follow US export controls. Dutch officials instead argue that efforts to keep sensitive technology out of “dangerous hands” should be done on a voluntary basis.“Elements in that Act seem to suggest that the United States might take control over some of these decisions that affect our national security and the way our companies operate,” Dutch Trade Minister Sjoerd Sjoerdsma told reporters this week in Washington, where he met US Commerce Secretary Howard Lutnick and lawmakers.Lutnick separately raised eyebrows recently by telling ASML executives that one of their top-of-the-range EUV machines was already in China in violation of export restrictions. The company has denied this and it seems highly unlikely. An EUV weighs 136,000 kilograms (300,000 pounds) and moving one requires three Boeing 747 freighters, according to The Wall Street Journal. They are also made in very limited quantities and require constant upkeep from ASML staff.The Match Act would prevent ASML from exporting less advanced deep ultraviolet (DUV) lithography machines to China. Other makers, including Japan-based Canon and Nikon, would also be affected. ASML has sold 1,400 DUV machines to China, it said in 2023. Canon has said that the country is its biggest market, without elaboration.The proposed legislation is yet to face a full vote in the US House or Senate. Its chances of becoming law are limited unless it’s wrapped into a larger package, such as a major defence bill.China is trying to negate the impact of all US export controls by developing its own technology. Chip foundries are stretching the capabilities of existing DUV machines and toolmakers are working on home-grown lithography equipment.Tech giant Huawei Technologies – long the subject of US sanctions – is also touting a new design framework called the Tau Scaling Law to get round the limitations of Chinese domestic chipmaking equipment. This focuses on improving overall processing performance by reducing latency between circuits, chips, devices and systems. That breaks with the traditional industrial goal of seeking to cram ever more transistors onto a single chip.The company has said it will be able to make 1.4-nanometre-equivalent chips by 2031. Chipmaking giant Taiwan Semiconductor Manufacturing Company plans to start mass-producing 1.4nm chips in 2028.Tighter US export controls will probably only accelerate Chinese efforts to pare reliance on foreign technology.