Reading about US attempts to hamstring Chinese semiconductor advancement, especially the well-known cases of ZTE, FJIC, and now Huawei, has caused me to think that it's time for China to significantly readjust its development strategy. I believe that the old strategy - import as much foreign technology as possible and use it to manufacture chips, then swap them out for domestic technology later - is simply doomed to failure. If a fab manager ever has to pick up the phone and dial ASML, he might as well just put the phone down and quit because America can put a proverbial bullet in his business's skull whenever the whim strikes it.
This is especially true now that the US has finally figured out that the commie yellows can actually master technology and pose a competitive threat. I think that the present circumstances has shown everyone that the US president has enormous latitude for unilateral action, especially when "fuck China" is how Congressmen greet each other in the hallway now. Does any of this call for capitulation? Far from it. Even if you are a coward, capitulating is useless when the only thing your enemy wants is your blood. Fighting is the only chance you have.
What is needed to win this war is a rethinking of industrial policy. The old strategy I outlined above depends crucially on a friendly enough business environment to acquire the foreign components, and then a lengthy period of waiting while domestic input producers catch up. You can master certain parts of the process that way but never all of them. Worse, by buying foreign inputs you finance technological development in the foreign country and disadvantage your own.
China needs to turn this on its head: put the subsidized roll-out of chips on ice for now. Instead use the money to fund development of the components (photolithography machines, fibre-optic switches, etc.) that foreign firms have a stranglehold on. Crucially, this strategy calls for total invalidation of all patents held by foreigners in these crucial technologies. The primary reason China doesn't compete with ASML isn't because they have some sorcery that China doesn't, it's that they hold patents that block China's development down that path. Well, those patents should now become recipe books.
China can even make a preemptive case to the WTO that since the US is imposing arbitrary technological blockades and press-ganging its allies into its cause, China is justified in taking these measures. China can argue that it will return to full compliance when the US lifts its siege and respects WTO rulings - but for as long as the US remains a renegade, China will take what measures it must to defend itself, its industry, and its right to development.
This will not be an easy path, legalistically or practically. Reverse-engineering a complicated piece of technology - even with full access to its patents and whatever your spies can obtain - is never going to be as easy as paying its designer to show you how it works and how to build it. It's not going to be steak dinners every night for Huawei; some nights it will have to make do with lentil soup. But the rewards are well worth the struggle and hardship, for at the end of this path lies total self-reliance and technological mastery.
It's also not without relevant precedent. It was precisely how the Chinese military modernized after the technological embargo imposed on it by all advanced countries after the fall of the Soviet Union, when China's strategic utility was spent. Although this modernization is still incomplete, it has already yielded a bountiful harvest. As an example, witness the Type 055 destroyer - the most fearsome warship to ever sail the seas. It stands head and shoulders above any foreign rival, and every nut and bolt on it, every transmit/receive element in its radars is Chinese. The PLA has much to teach civilian SOEs and private industry about how to thrive in the face of a technological blockade.
