Transcript: China's Response to U.S. Semiconductor Export Controls, with Paul Triolo and Kevin Xu

Below is a complete transcript of the Sinica Podcast recorded on August 2, 2024. Thanks to Collins Ochieng and the team at CadreScripts.com for the consistently great work, and to Lili Shoup at Freiburg for the laborious formatting, checking, and linking! Listen to the podcast in the embedded player below, or subscribe wherever you get your podcasts!

Kaiser Kuo: Hi, it’s Kaiser from the Sinica Podcast. I am super excited to announce that Tech Buzz China has teamed up with Sinica to bring you a one-week study tour to China from October 20th to October 26th. My friend Ed Sander and I will lead the tour and deliver a series of lectures exploring how China got to where it is — the story of its breakneck modernization, its causes, consequences, and costs, and where it’s likely to be going. We’ll visit Beijing, Shanghai, and Hangzhou, and you’ll hear customized lectures, visit some of China’s iconic companies, explore these great cities, enjoy diverse Chinese regional cuisines, and take in all sorts of culture and nightlife.

Ed and other colleagues at Tech Buzz China have years of experience leading study tours. This time, in addition to the business and tech focus they’re known for, we are adding lots of pertinent history because context is so important. China is a nation that is reshaping the world. We all need to be better equipped to understand where China’s coming from, and there’s no more efficient way than spending a week in China with Ed and me. We’ll make this an unforgettable experience. Seats are limited to just 18 individuals, and registration closes on September 1st. Just go to chinatechtrip.com/sinica. That’s chinatechtrip.com/sinica. And if you’re somebody who already knows China well, tell a friend who doesn’t. Hope to see you in China.

Welcome to the Sinica Podcast, a weekly discussion of current affairs in China. In this program, we’ll look at books, ideas, new research, intellectual currents, and cultural trends that can help us better understand what’s happening in China’s politics, foreign relations, economics, and society. Join me each week for in-depth conversations that shed more light and bring less heat to how we think and talk about China. I’m Kaiser Kuo, coming to you from Chapel Hill, North Carolina.

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I never tire of talking to smart people about the way that technology and geopolitics intersect. It’s a good thing then that my field of interest is China because the U.S.-China competition in technology remains, as ever, rooted in geopolitics, and our geostrategic competition, conversely, centers on technology. Nothing better embodies the current American anxiety over China’s rise. Nothing else reflects, and not always in the most flattering light, America’s determination to maintain its global primacy. And probably nothing better exemplifies the securitization of technology than the spate of policies that the Biden administration has adopted in the last couple of years.

Just to be clear on what we’re talking about here, I mean the export restrictions on advanced semiconductors, though I should hasten to add, restrictions not just on semiconductors, but on other technologies as well. And not just on American firms exporting the chips, but on other countries and regions who are doing so — Korea, Japan, Taiwan — and also outright bans on U.S. persons working in China for Chinese firms on advanced chips, as well as bans on the export of the equipment containing U.S. content for the design and manufacture of advanced integrated circuits.

Now, it’s been nearly two years since the first round of major restrictions were announced on October 7th, 2022. And not only has the fence in the “small yard, high fence” formulation gotten higher, but that fence encompasses an expanding swath of yard these days. Just yesterday, there was a piece in Bloomberg saying that the Biden administration is weighing the imposition of further restrictions, this time on cutting-edge HBM, high bandwidth memory, that’s made by Micron, which, by the way, Beijing has already pretty much banned from core Chinese infrastructure, as well as Korean manufacturers, SK hynix and Samsung. I swear I am usually not fond of quoting Neil Ferguson. I actually found myself in vigorous disagreement with that guy most of the time, but he did say something at Davos last year that really nailed it, and I’ve often quoted. He said, “The United States has a strategy of technological containment. It’s a bit like in The Three-Body Problem where the Trisolarans try to halt the technological advance of Earth. That’s exactly what the U.S. is trying to do with China.” That’s what he said. I kind of love that quote. I like how he basically assumed that everyone had read Three-Body Problem by Liu Cixin. This was, by the way, long before the Netflix series came out too. 

Anyway, American efforts have focused on advanced semiconductors and the inextricably linked issue of generative AI, what with all the high-end GPUs, the graphics processing units, that are made by the likes of Nvidia, which are also under export restriction — some of them are. And so that’s what we’re going to focus on today, on these two issues of semiconductors and generative AI. 

So today I am delighted to have two of the people I know who are just most informed and insightful on the state of these technologies in particular. They are informed about the policies also in the context of the bilateral relationship. So first, let me welcome back Paul Triolo, who’s been on the show before, several times, is Partner and Senior Vice President for China at DGA Albright Stonebridge Group, and is the Technology Policy Lead there as well. He recently published an in-depth look at the way China is mobilizing in the face of U.S. restrictions on exports of advanced semiconductors, U.S. persons, like I said, working in that sector in China, equipment used in the design and manufacture of those chips. So, the piece is in the journal, American Affairs, and it’s called “A New Era for the Chinese Semiconductor Industry: Beijing Responds to Export Controls.” It is a real tour de force, certainly the most comprehensive look that I have seen at this really complicated issue. 

But if you are not marinating in this stuff all day, like some of us are, you will want to keep a Wikipedia tab or your favorite LLM like ChatGPT open to explain some of the technical terminology. We’re going to do our best today, I hope you guys are both with me here, to pause and explain some of the jargon when we hit it. Right, Paul?

Paul Triolo: Yes. Happy to pause and explain anything, in particular the tech stuff.

Kaiser: Oh, great. Well, welcome back. With that caveat, welcome back to the show, and hope your summer has been a good one so far.

Paul: Yes, and happy to be here. Glad to be back.

Kaiser: Great. I am also delighted to welcome in what astonishingly is his first appearance on this show, Kevin Xu, an unpardonable oversight, especially considering that he lives so close by. Kevin is the author of the outstanding Interconnected newsletter. He worked in the Obama White House as well as the Department of Commerce when Gary Locke was Commerce Secretary there. He later joined GitHub. He is now an investor and speaks frequently on topics related to technology, tech policy, finance, and the U.S.-China relationship. For now, at least, he lives here in the Triangle in Durham. He joins us from, well, from my dining room table. Hey Kevin, how are you, man? It’s good to finally have you on the damn show.

Kevin Xu: Absolutely. Thank you so much for inviting me to your lovely dining room, Kaiser. I was actually reflecting on my drive here to your house, how, even though we live basically 30 minutes apart from each other, I’ve seen more of you in New York City and places like Salzburg, Austria than here in the Durham-Raleigh Triangle. But it’s really great to be finally on the show.

Kaiser: Yeah, that’s nuts. I mean, I don’t know how that is. I mean, it’s just bizarre. I mean, we’ve got busy lives and stuff. When we’re here, it’s usually just to kind of duck from all the craziness.

Kevin: Right, right.

Kaiser: Anyway, Kevin, I wanted-

Paul: I want to just say how honored I am to be on with Kevin too because I’ve been on some panels with him before, and one of the really great commentators on some of these complicated issues on China and technology policy.

Kaiser: I was just thinking back to the last time that I had both of you guys on panel, as well as our lovely friend Samm Sacks, that was a quite the Super Friends kind of panel, wasn’t it? It was at, unfortunately, the last conference of The China Project back in November of 2023 in New York. But you guys killed it. That was amazing.

Kevin: Yeah. Thanks for that, Paul. Appreciate that shout-out.

Kaiser: Anyway. Okay, so Kevin, I wanted to talk to you, actually, about a couple of really interesting items from Interconnected, which, by the way, I have to reiterate, I mean, I just highly recommend anyone interested in China, in technology, or both, you should absolutely be subscribing to and reading that newsletter. Anyway, before I take you on as a kind of quasi-co-host to join me in asking questions to Paul about this piece that he mentioned — but not just that piece, but also about something that he co-wrote with Kendra Schaefer of Trivium, who is just another one of the people who I admire just immoderately for her knowledge and her ability to communicate complicated issues about technology. Anyway, she and Paul wrote this great piece for the National Bureau of Asian Research, where she, I think, is a non-resident fellow, about the state of generative AI in China, so, we’re going to be talking quite a bit about that too. 

One thing that you wrote, Kevin, was about how there were all sorts of mentions of artificial intelligence throughout the decision document that came out of the Third Plenum, which just ended on July 18th, so just a couple of weeks ago. And it’s something that a lot of people who look at China have been looking at very, very carefully. I think you were the only person to point out that there was only one relatively minor mention specifically of generative AI,  but there’s lots of mentions of AI throughout the document. I think you actually did a count, but there’s obviously a lot going on in generative AI in China. The competition among the players is really, really intense. There are more and more entering at all levels, I mean, gigantic ones and little startups. What do you see of the significance of this apparent downplaying of generative AI in the policy documents that emerged?

Kevin: First of all, Kaiser, thank you for asking that question the way you asked the question. I think we talk about AI these days in a very loosey-goosey way, right? But there is a very huge difference between generative AI, or shēngchéng shì réngōng zhìnéng 生成式人工智能 and artificial intelligence, or just réngōng zhìnéng 人工智能, as a term. And if you just control+F the decision document from the Third Plenum, you only find one instance of shēngchéng shì réngōng zhìnéng which is shoved away in section 10, subsection 40, on a section that actually has to do with comprehensive cyberspace governance. It does not have to do with how are we going to make the new quality productive forces real, or boost productivity everywhere, or even to solve demographic problems, right, which you can think of that as a direct sort of corollary to technology advancement. It’s shoved in this cyberspace governance and it’s contextualized within how to manage online discourse, how to manage public opinion, how to manage quality content on the internet.

Kaiser: Which is really telling, right? I mean, because that’s where it is.