The US-China chip war is heating up after Huawei launched a new phone featuring technology that Washington was hoping to keep out of China's reach.

Last month, Huawei released the Mate 60 Pro phone without providing much detail on the chips used for the device. But Ottawa-based TechInsights, a research organization specializing in semiconductors, made a surprising discovery after taking the phone apart for analysis — the device was run on a Chinese-made Kirin 9000s 7-nanometer processor. The scale of the chip is essential, as smaller-scale chips can be packed with more elements, thus making them faster and more powerful. The chip also appears to be 5G capable.

The manufacturer, Semiconductor Manufacturing International Corp (SMIC), was previously known for making chips limited to the 14 nanometer level.

In their analysis of Huawei's smartphone, TechInsights said that the processor indicates the Chinese government is "opening the door" to a fully domestic chip ecosystem.

Washington gets a 'little bit of a shock'

Both Huawei and SMIC are under US sanctions for alleged security risks. SMIC, which is China's largest chipmaker, is restricted from buying Extreme Ultraviolet (EUV) machines used for making the world's most advanced microchips. The EUVs are exclusively supplied by the Dutch company ASML.

Some were hoping that these restrictions would preserve the US technological edge as the two countries vie for dominance on the global semiconductor market.

"There's a little bit of shock in Washington… They thought they banned everything. How come the Chinese are still making progress?" Lu Xiaomeng from the consulting company Eurasia Group told DW, specifically referring to the 5G capabilities of the Huawei phone.

Message to the US

The launch of the Huawei phone was seen as somewhat of a national triumph in China. Many have noted that it was released during the visit of US Commerce Secretary Gina Raimondo, possibly as a signal of Beijing's self-reliance to Washington.

And Washington took note — the Biden administration has already launched a probe into possible violations of the sanctions, and some Republican lawmakers are calling for tighter restrictions.

The explanation, however, might not include Chinese companies bypassing the sanctions to obtain cutting-edge technology. Last year, TechInsights already reported that SMIC might have managed to create 7 nm chips by using modified, less advanced Deep Ultraviolet (DUV) machines that are still available for purchase.

For Lu, the head of Eurasia Group's geo-technology practice, Huawei's latest advance should not have come as a surprise.

"If your tactics sort of pushed Huawei into a corner, they eventually will innovate their way out of these restrictions," she told DW.

James Lewis, director of the Technology and Public Policy Program at US think tank Center for Strategic and International Studies (CSIS), has similar views — new US restrictions could buy time in the chip race, but will not stop Huawei and other Chinese companies, he said.

Should Taiwan's TSMC be worried?

There are also the experts who downplay Huawei's breakthrough and doubt that the company can produce the advanced chips at large scale.

Ray Yang, a consulting director of Taiwan's Industrial Technology Research Institute (ITRI), told DW that "technology needs to be scalable for production" instead of staying at the research and development phase.

He said Taiwan Semiconductor Manufacturing Company (TSMC), the world's leading chipmaker, holds various patents in mass production while "SMIC lags far behind in this area."

TSMC is capable of supplying the global market with even more advanced 5 nm chips. The company already hold over 60% of manufacturing capacity for the most advanced semiconductors.

Yang believes that Huawei's success would be short-lived, probably lasting no more than a year.

"SMIC cannot make 5 nm chips without EUV technology," Yang said.

Banning exports a 'Cold War solution'

Last week, the US Commerce Secretary Raimondo also said no evidence showed that Huawei was capable of producing smartphones with advanced chips "at scale," adding that Washington has continued to investigate the manufacturing process.

And while anti-China hawks are calling for more sanctions, some experts claimed it would be impossible to pass watertight measures to exclude China from the strongly intertwined global supply chain.

"Trying to block the chips is a very Cold War solution," said CSIS Director Lewis.

His suggestion is for the US government to "allow chips to go to China" but not the  equipment for manufacturing those chips.

This way, as Lewis indicated, would be a win-win situation where the US firms can keep their market share in China while the Chinese brands, such as Oppo and Xiaomi, would still resort to Western chips that have lower price and higher quality.

Without them, Beijing would have a "tremendous incentive" to build its own semiconductor capabilities.

Less blocking, more research

Moreover, Beijing has already responded to sanctions by limiting exports of key metals for manufacturing semiconductors. And last month, China announced a new $40 billion (€37.6 billion) fund for domestic chipmakers to reduce reliance on foreign technology.

Eurasia Group's Lu believed the US has been "focusing too much on blocking competition and not enough on shoring up their own capacities."

"When you are keeping your competitors three generations behind," she said, "you are also keeping your own company one or two generations behind."

DW's Yu-Chun Chou contributed to this report.

Edited by: Darko Janjevic