Western sanctions hurt China’s semiconductor targets. Xi must up the ante or fold

Faced with sanctions and a slowing economy, Xi could simply collapse and emerge from the crisis he marched the country into. | Representative image | Pixabay

Eighty Sen’ was the name given to him by the Tokyo geishas who manicured the admiral’s nails. The price for a manicure was 100 sen, but Isoroku Yamamoto insisted on a discount, having lost two fingers in battle with the Imperial Russian Navy. The naval commander who orchestrated the daring raid that nearly destroyed the United States Navy’s Pacific Fleet at Pearl Harbor often spent his evenings playing poker and the Japanese board game shogi for high stakes. The geishas learned that the old sailor not only knew the value of money, but also had a keen sense of strategy.

“There is no chance of winning a war with the United States,” Admiral Yamamoto warned his superiors urgently. “We must not start a war with so little chance of success.”

Last week, China appointed bureaucrat Zhang Xin to spearhead a $150 billion bid to develop advanced computer chips through its scandal-ridden semiconductor investment fund, sometimes called simply The Big Fund. The chances of success, Zhang probably knows, are slim. The so-called Made-in-China 2025, launched under President Xi Jinping in 2015 to free China from dependence on foreign semiconductor technology, has seen billions in losses from bribery and lavish spending — but no breakthroughs.

With sanctions imposed on emerging technologies by the United States, the Netherlands and Japan, Xi likely believes he has no choice. Advanced chips are often referred to as the oil of the future, the fuel of modern economies. The sanctions condemn China as a second-tier power.

The admiral would have told Xi he was making the wrong call. With sanctions choking off access to the banking system and four-fifths of its oil and steel, historian Edward Miller wrote, Imperial Japan felt it had no choice but to strike.

Even as he planned Pearl Harbor, a gamble where a crippling strike could end the war on day one, Yamamoto advocated reversing Japan’s invasion of China and cutting ties with Nazi Germany. The United States’ colossal industrial resources, he warned, guaranteed Japan’s eventual defeat.

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Cold War technology

During the course of the Cold War, the West cemented its technological lead over the Soviet Union through a technology denial regime known as the Coordinating Committee for Multilateral Export Controls (CoCom). Although Soviet science recorded many impressive technological achievements – expert Slava Gerovitch has documented the significant advances in computer science, and the country famously landed on Venus in 1975 – CoCom made this advance extremely expensive.

Although effective Soviet bloc scientific espionage compensated for some of these weaknesses, declassified documents show that theft of technology failed to create an economically efficient and self-sustaining innovation ecosystem.

One of the concerns driving CoCom was the recognition of the implications of technology transfer. The growth of the Imperial Japanese Air Force was driven in part by British technology and American machine tools. The increasing sophistication of the Japanese air force allowed the country to circumvent the limitations on the size of its battleships established after World War I.

Although there have been several intelligence warnings about the increasing sophistication and capabilities of the Japanese Air Force, military historian Justin Pyke has noted that racism caused strategists to underestimate the threat they posed.

However, after the historic break between the Soviet Union and China, the United States was increasingly willing to allow Beijing to breach the great CoCom wall. Tai Ming Cheung and Bates Gill note that as China emerged as a major Western trading partner, economic concerns trumped national security concerns. China gained ever easier access to cutting-edge technologies in aerospace, materials science, nuclear physics and computing.

The West also gave Beijing easier access to military technology, seeing it as a safeguard against the Soviets. Japan gave China access to integrated circuits crucial to missile guidance and tracking systems, William Tow and Douglas Stuart reported. Experts from Japan taught Chinese technicians about state-of-the-art air defense systems and the use of computers in military systems. Israel also became a major supplier of cutting-edge military technology.

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Xi’s last risk

Before his election in 1969, US President Richard Nixon published a roadmap for the West’s rapprochement with China. Since the 1949 revolution, the United States had refused to recognize China, seeing communism as a threat to its interests in Asia. The strategy is misplaced, Nixon argued, that “the world cannot be safe until China changes.” “Therefore, our goal should be, as far as we can influence events, to bring about change. The way to do that is to convince China that it needs to change.”

Xi’s increasingly aggressive efforts to rewrite the structure of global power and establish China as the hegemon in Asia were the result of this struggle. The Chinese president gambled that his country’s central position in the global economy could insulate it from the consequences of his actions.

However, from the history of the Big Fund, it is clear that Xi made a bad bet. Well-connected tech scammers have proven adept at diverting government funds to shady companies. True innovations like Huawei’s Kirin 9000 cellphone chips have been crippled by sanctions that denied it access to the machinery needed to turn the designs into mass-market products. China simply did not have the basic scientific basis needed to produce cutting-edge chip-making machines.

“This frenzy of government capital investment, political importance, and nationalist narrative sounds eerily similar to the disastrous Great Leap Forward of 1957, which was about increasing steel production,” notes Elliot Ji. Today, this new Great Leap Forward threatens to become a Great Leap Nowhere.

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Is war imminent?

After invading China, Japan grandly announced the arrival of “a new order in East Asia.” Tokyo plans, it announced, “to perfect the common defense against Communism and to create a new culture and realize close economic cohesion throughout East Asia.” After Nazi Germany’s successes in Europe, Japan became increasingly convinced that the West would be able to respond to a rapid war of expansion. Japan could simply acquire the resources it needs and establish a sphere of influence across Asia.

The hawkish figures who have dominated Japanese politics have miscalculated badly. What was intended as a quick grab for resources led the country into a war it couldn’t win.

Xi likely knows his billion-dollar semiconductor is only delaying his moment of strategic decision-making. Faced with sanctions and a slowing economy, the Chinese president could simply collapse and emerge from the crisis he marched the country into.

However, this sensible course is not the only one Xi has. He might believe that the West will not be willing to bear the gargantuan economic and military costs of a superpower war just to protect allies like Taiwan. Even if that is the case, Xi may find the price worth paying. China’s economic growth is eventually slowing and its population is aging, meaning Xi must act now — or lose the opportunity forever.

Ever since nuclear weapons ended the war with Japan, the world order has been based on the assumption that no nuclear power will force another into war. However, the war that began in 1941 shows that deterrence can and does fail. If leaders believe that the alternative to war is certain defeat, they will take unwise risks. Will Xi be willing to sacrifice his nation’s hard-won prosperity for an ideologically-driven illusion? The road to the last great war in Asia tells us not to take the answer for granted.

(Edited by Theres Sudeep)