U.S. Concerns Over Chip Access in China: A Strategic Block or Self-Limiting Move?

Why Limiting China's Access to Advanced Chips Won't Work

The debate over whether restricting China’s access to advanced semiconductors will stifle its tech ambitions is a heated one. Some argue that if the U.S. were to flood the Chinese market with top-tier chips, Chinese companies might lose the incentive to develop their own cutting-edge technologies, given the high investment costs involved. However, this theory has a critical flaw when applied to China, largely due to how investment is structured in the country.

I initially thought this idea held water, but a conversation with Jerry—a tech expert who runs his own YouTube channel—changed my perspective. He highlighted a crucial difference: in China, it's the state, not the private sector, that drives early-stage technological development.

The Role of State-Driven Investment in China

In the United States, technological advancements are primarily fueled by the private sector. Companies are unlikely to invest billions into research and development if the top-tier products they aim to create are already accessible on the market. The economics don’t add up, and profit-driven private enterprises prioritize short-term gains.

China’s approach, however, is vastly different. About 80% of initial investments in critical technologies come from the Chinese government. The state is willing to absorb losses—even for a decade—if it sees a potential for long-term growth. This means that even if the U.S. were to make advanced chips widely available in China, it wouldn’t deter Chinese efforts to innovate. The Chinese government is playing the long game, looking 40 years ahead, while American companies tend to focus on the next quarter or electoral cycle.

Examples of China’s Long-Term Investment Strategy

Electric Vehicle (EV) Battery Technology:

From 2009 to 2019, China’s government was responsible for 92% of all investments in EV battery technology, leaving a mere 8% to the private sector. Over time, as the industry matured and profit margins improved—from a loss of 8.11% in 2013 to a gain of 21.35% in 2024—the dynamics shifted. Now, the private sector contributes 76% of investments, with 61% coming from Chinese firms and 15% from foreign companies.

Commercial Aircraft Engines:

In the aerospace sector, state-led investment remains dominant. Approximately 93% of funding for commercial aircraft engine development is state-backed, allowing China to take strategic losses. For example, the Chinese government can afford to lose 20% on each high-quality engine during the development phase. Once production scales up, they anticipate turning a 15% profit, which will then attract private investment. In contrast, American giants like GE don’t have the luxury to operate at a loss for extended periods.

Why the U.S. Can Only Slow, Not Stop, China’s Progress

These examples underscore a broader point: China’s economic and technological strategies are fundamentally different from those of the U.S. The heavy involvement of the state in funding allows China to absorb setbacks and focus on long-term development. As a result, restrictions on chip access might slow China's progress, but they won't stop it.

In the end, while the U.S. views technological leadership in short-term increments, China is building for the future. It’s a clash of economic philosophies—one driven by quarterly results, the other by decades-long ambitions. Thus, while U.S. sanctions and chip restrictions may have some impact, they are unlikely to cripple China’s technological trajectory. At best, they might buy the U.S. a few more years of dominance in the semiconductor industry, but the gap is narrowing.

The U.S. strategy of limiting China's access to advanced semiconductors is unlikely to yield the long-term results policymakers hope for. While it may serve as a temporary obstacle, the Chinese government's heavy investment in homegrown technology means the nation’s progress will continue, albeit at a potentially slower pace. For the U.S. to maintain its technological edge, it may need to rethink its own investment strategies and adopt a longer-term vision akin to China's. Without a shift in perspective, America risks losing its competitive advantage in the global tech race.