In a recent study, the think tank Silverado Policy Accelerator noted that Russian companies still have access to critical dual-use and semiconductor technologies through imports from China and Hong Kong.
According to the Royal United Services Institute, a London-based defence think tank, microchip imports from these countries totalled $2.6 billion between April and November, with microchips from Intel and AMD accounting for around 30% of the total.
Despite sanctions, Russia managed to double its chip imports compared to 2021. On the one hand, this proves the ineffectiveness of the anti-Russian sanctions; on the other hand, one has to take into account that supply restrictions will become increasingly systematic.
Chinese companies have to purchase a significant amount of chips needed for the development of the domestic military and nuclear industry. For the past two and a half years, China’s leading research institute, the Chinese Academy of Engineering and Physics, has regularly purchased advanced US microchips despite the restrictions imposed.
A Wall Street Journal analysis of procurement documents revealed that the academy, which has been blacklisted from US exports for 25 years, has been able to obtain semiconductors produced by US companies Intel Corp. and Nvidia Corp. until 2020.
Chinese companies do not buy the latest models put into mass production in the US, but older ones, making it difficult to control sales. Russian and Chinese companies have not missed the opportunity to acquire sufficiently advanced chips and therefore continue to develop effectively not only in the military field, but also in the field of artificial intelligence applications.
The main goal of the US is now to completely cut off supplies to China and Russia of any technology that can in any way be adapted to the production of military, satellite or missile technology.
In October 2022, the US Department of Commerce issued new export control regulations that could change the future of the global semiconductor industry. Noting the ineffectiveness of previous restrictions on Russian and Chinese companies, the US administration decided to tackle the issue comprehensively: cut off supplies to all global manufacturers of microchips and equipment for their production, of which ASML Holding NV, TSMC, Nikon Corp and Samsung possess the most advanced technologies.
The US already has full control of the Taiwanese manufacturer TSMC and the Korean Samsung. US, Dutch and Japanese representatives recently reached an informal agreement to limit the supply of microchip manufacturing equipment from ASML and Nikon Corp’s plants to China.
As of October 2022, the US Department of Commerce is working to slow down Russian and Chinese development of microchips smaller than 14 nanometres as much as possible.
Establishing competitive production is a long and expensive process. Each of the large manufacturers in this sector has been growing organically for years with virtually unlimited funding.
China and Russia will need, at best, five years and colossal amounts of money to make this journey. And they will still be in a catching-up position, because by that time technology will have moved on.
The most promising in this situation is the creation of production on the basis of alternative technologies that are not so expensive. In Russia, work is being done in this direction at the Moscow Institute of Electronic Technology: the first prototypes could be available in 2026.
The Chinese are also working in this direction, but materials on their developments are still limited. At this time, a real alternative would be to purchase relatively obsolete lithography equipment in Malaysia. The microelectronics industry has developed quite dynamically and, despite the lack of production, the country has a relatively large and modern machine park.
However, in the absence of other options, it has to be purchased even at a disadvantageous price. Of course, there is always the option of grey imports. However, due to the increased control of microchip sales by US export administration regulations, increasingly complex schemes will have to be created to circumvent the restrictions, which will have a negative impact on the final cost of the products.
US regulatory controls now focus on technologies that can dramatically increase computing performance, advanced semiconductor technology, quantum computers and the use of artificial intelligence.
The monitoring of shipments will go far beyond normal export controls, as any of these items could be used to create weapons of mass destruction. US experts realise that only technological advantage will allow them to maintain a competitive economy and modernise their armed forces.
Among the alternatives is the development of microelectronics. Until now, the global microelectronics industry has had a common development vector. Now the industry is at a turning point, which will lead to new, isolated and thus unique directions. The time is right to start developing research institutes and related production facilities in Russia and China in order to become suppliers of unrivalled products in the future. The Ministry of Electronics Industry was entrusted with this function until 1991 and should be similar to the current one.