By Ambrose Evans-Pritchard
October 19, 2023 — 4.11am
The US is escalating its semiconductor war against China. Xi Jinping’s plan for global mastery of artificial intelligence and supercomputing is about to collide with the hard reality of American power.
Cutting-edge AI requires ultra-fast chips and enormous “compute” power to train large language models as they draw on ever larger pools of data. Any company that lacks access to these chips will see costs spiral upwards, leaving it unable to compete at the technology frontier.
Nvidia, the US market leader in AI chips, says the rule of thumb is that the computing power required doubles every six to 12 months. China has spent some $US100 billion ($157 billion) in three successive “Manhattan Projects” trying to develop a world-class chip industry, but is not yet close to parity. It lacks access to the lithography needed to master miniaturisation below 7nm (nanometres).
Chinese President Xi Jinping and US President Joe Biden on the sidelines of last year’s G20 summit. China’s plan for global mastery of AI and supercomputing is about to clash with the hard reality of American power.Credit: AP
The Biden administration has been pulling its punches on semiconductor controls, but this is about to change. The departments of state, defence, commerce, and energy have agreed on a tougher regime for advanced chips and supercomputing technology.
It will split the world into two camps: either you are in the advanced US sphere, or you are in the Chinese sphere with areas of strength in “mid-critical” semiconductors but a step behind where it really matters.
The White House imposed restrictions on chip exports to China a year ago. It limited the rate of data transfer to 600 gigabytes per second (GB/s) and to computation power of 4800 trillion operations per second (TOPS). Nvidia has continued to supply China but with modified chips that halve the rate of data transfer. This makes no difference for chips in laptops or 4G mobile. It is critical for AI or weapons technology.
It will split the world into two camps: either you are in the advanced US sphere, or you are in the Chinese sphere with areas of strength in “mid-critical” semiconductors but a step behind where it really matters.
Washington will now tighten the noose. It will happen just as Nvidia rolls out a new chip next year that will be three times faster. “The technological gap between cutting-edge chips and what China is permitted to buy is set to widen,” said a report by Capital Economics.
China’s semiconductor champion SMIC has cracked homegrown chips at scale down to 7nm for Huawei’s new smartphone. This is impressive, but it is still not enough to play in the top league of global AI. Catching up will become even harder henceforth. “They are close to reaching the limits of what is achievable with deep ultraviolet lithography (DUV) machines,” said the report.
China needs the next generation of “extreme” ultraviolet lithography (EUV) just to match the 4nm AI chips manufactured for Nvidia by TSMC in Taiwan, let alone for even better chips. The only company in the world that makes these rare $US200 million machines is the Dutch firm ASML, itself reliant on critical components from California. The ASML devices are covered by the US embargo.
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It will take years for China to replicate its own EUV capability, years that China does not have. By then the contours of the AI revolution will be established, framing the world’s digital and economic ecosystem far into the 21st century.
It is possible that China could leapfrog today’s existing silicon wafers by jumping to advanced compound semiconductors based on graphene or silicon carbide that are ten times faster, or by using photonics that can move data at the speed of light – both areas where Britain is a world leader.
These have the potential to slash energy use and overtake the current “fabs” being built at $US20 billion a shot in Europe. Chinese cyber-espionage is working overtime trying to hack the technology, but that is easier said than done.
Capital Economics says the AI revolution could lift productivity rates by 1.5 percentage points a year in the long run, but only for the winners. The US will top the AI rankings over the next two decades because of its overwhelming lead in investment, backed by vibrant capital markets and elite universities. It will be followed by Singapore, the UK, Switzerland, Sweden, South Korea, and Canada, in that order.
“This would mean a gradual – but striking – end to the period of low productivity growth which has dogged developed economies for most of this century,” said Neil Shearing, the group’s chief economist. It could lift annual tax revenues by 2 per cent of GDP – ceteris paribus – and make it much easier to outgrow sovereign debt burdens.
Rather than seeing the rise of the Global South as the West declines, we may see the West pull ahead again. Asian tigers that cleave to the US will prosper. Those that cleave to China will reap fewer gains.
Stanford University’s AI Index shows that the UK has captured as much private investment in AI as the whole of the eurozone combined. London has burgeoned into a global AI cluster with Google DeepMind and Stability AI, among others, but what it lacks is serious computing power. Electricity costs are too high to meet the voracious needs of data centres.
Capital Economics thinks Europe will drop the ball on AI, just as it dropped the ball on the IT and digital revolution. “History may be repeating itself,” it said. The Nordics will do well, but the large eurozone states will be held back by labour rigidities, lack of venture capital and poor cloud infrastructure.
The emerging economies and most of the BRICS-11 will be left behind. The picture is more or less the opposite of conventional wisdom. Rather than seeing the rise of the Global South as the West declines, we may see the West pull ahead again. Asian tigers that cleave to the US will prosper. Those that cleave to China will reap fewer gains.
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China will be in the middle of the pack at 19th place, leading in image recognition and self-driving electric cars. It will struggle in other areas, hobbled by top-down control and censorship, and by Xi’s habit of chopping down any tech tycoon who threatens Communist Party control.
Taiwan window of opportunity
If this is where the AI world is heading, Xi may be tempted to forestall it. His window of opportunity for retaking Taiwan will narrow as China’s workforce shrinks, old age dependency goes parabolic, and the growth speed limit falls to 2.5 per cent.
A seaborne assault on the island would be dangerous, but we do not know how deeply the Taiwanese military is penetrated by Chinese sympathisers, or whether the opposition Kuomintang has the stomach for a fight.
Xi may never have another chance like today when the US military is stretched on the twin fronts of Ukraine and the Middle East. Taiwan would deliver TSMC and 90 per cent of the world’s production of advanced chips, as well as the booty of EUV lithography machines – if the Hsinchu Science Park survived the assault.
An awkward thought in these tense times.
The Telegraph, UK
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