Huawei Chip Breakthrough Triggers U.S. scrutiny

Huawei Technologies Co. and Semiconductor Manufacturing International Corp., already blacklisted by the U.S., launched a new phone using highly advanced technology that has sparked concern in Washington. To help you understand what is going on in the trade/China landscape and what we expect may happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

China’s big chip breakthrough is less than meets the eye. Recent news, that telecom giant Huawei collaborated with China’s largest chipmaker, Semiconductor Manufacturing International Corporation (SMIC) on an advanced processor to power its latest smartphone, set off alarm bells in Washington.

But the chip they produced is still five years behind the cutting edge — an eternity in semiconductor time. And without access to more advanced equipment, which is limited by export controls, Beijing will struggle to produce additional breakthroughs, despite heavily subsidizing various semiconductor manufacturing initiatives.

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Nevertheless, don’t be surprised if Uncle Sam further tightens restrictions on China’s access to semiconductor manufacturing equipment. By some accounts, U.S. enforcement of export controls has been less stringent than expected, a consequence of industry lobbying.

But critics also say these regulations were poorly designed, allowing China to access less-advanced equipment still capable of making more advanced chips, though not well enough to be commercially viable.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

Housiaux covers the White House and state and local government for The Kiplinger Letter. Before joining Kiplinger in June 2016, he lived in Sioux Falls, SD, where he was the forum editor of Augustana University's student newspaper, the Mirror. He also contributed stories to the Borgen Project, a Seattle-based nonprofit focused on raising awareness of global poverty. He earned a B.A. in history and journalism from Augustana University.