US-China Chip War – Policy Recommendations by PKU Scholar Lu Feng

"Since the US has used its ‘nuclear weapon’ against China, China should strike back and use its own ‘nuclear weapon’ ... The US’s ‘nuclear weapon’ is tech and China’s ‘nuclear weapon’ is its market."

Dear Everyone,

Happy New Year of the Rabbit!

Today’s edition of Sinification looks at an important interview with Lu Feng (路风), a political economist and professor at Peking University's School of Government. Lu has long been an advocate of Chinese “independent innovation” and was part of the expert committee tasked with discussing China’s plans to develop a homegrown passenger jet some twenty years ago. Gao Yanping (高艳平), the journalist who conducted this interview on behalf of the news website Guancha, describes Lu’s ideas as having had “a huge impact on readers interested in China's industrial development.”

The following interview was published a couple of weeks ago and is certainly one of the more detailed and interesting pieces discussing the current US-China tech war to have been published in China in recent months. For those of you interested in this topic, I would recommend reading it in full. The lengthy excerpts below have been translated with the kind help of Laura van Megen who is co-authoring today’s post with me.

Lu’s main arguments:

• The scope of Washington’s tech crackdown has always been constrained by the reliance of US companies on the Chinese market. Lu recommends further weaponising Chinese demand.

• Beijing must stop pursuing individual technological targets and should come up with a comprehensive strategy aimed at developing an “independent industrial base” for semiconductors.

• Chinese companies are already present in almost every part of the semiconductor supply chain. The key for China today is to help foster strong supply and demand links between these companies.

• Beijing should set up a body similar to the Mao era’s Central Special Committee [中央专委] that would directly oversee the development of this industrial base.

• China must pursue “fully independent manufacturing” by first de-Americanising its chip supply chain and ultimately replacing almost all foreign made equipment and materials with domestically made ones. Decoupling is bad for everyone, but needs must.

• China should focus less on developing advanced chips and more on building up a domestic industrial chain capable of producing mature chips (≥28nm).

• China’s goal should be to become the world’s main supplier of mature chips and ultimately use this dominance as a weapon against the US and others (if and when necessary).

• Beijing should impose sanctions on any company that complies with the US’s export controls. For example, by banning the sale of NVIDIA’s mature chips and of ASML’s less advanced lithography equipment to China.

• Lu is adamant that China should implement strong countermeasures in response to the US’s current crackdown. Backing down will only make matters worse, he says.

Sinification is looking for volunteers to help with the translation of its texts. If you are a student or recent graduate, a small remuneration will be provided. Contributors will be credited as co-authors. Requirements: 1. Advanced Mandarin; 2. Native English.

1. The US’s tech crackdown is constrained by the pull of China’s market

Interviewer: The US has been constantly making new moves to block and remove Chinese technology, with embargoes and bans being issued one after the other. How do you analyse this situation?

Lu Feng: “Some thought that the US’s drive to contain China would ease a little once Biden took office. However, it would now appear that it has not been eased at all.”

“The US’s ban will certainly have an impact on China's technological and economic development, there is no doubt about that. But is there a way forward for China?”

“China is the largest market for chips. Let’s say China were to stop importing chips from the US completely, the US’s semiconductor industry would also be hit very hard [遭到重创]. For the past five years the US has been cracking down on Chinese tech companies but has been loath to go all the way [投鼠忌器, literally: ‘refraining from shooting at the rat for fear of breaking what’s next to it’]. That is because they know that if they completely choke China out [把中国卡死], they will also be choking out their own businesses at the same time.”

“For example, for US companies such as Qualcomm, Nvidia and others, the Chinese market contributes up to 70% or more of their revenue. If the Chinese market were suddenly to disappear, these companies would reduce their investments, lay off staff and see their share prices plummet. This in turn would lead to panic on Wall Street and to other knock-on effects.”

“Under these circumstances, the United States on the one hand is choking China [卡中国脖子] in certain key technological areas and focusing on getting rid of the most powerful Chinese companies that pose a challenge to the US’s technological hegemony, such as Huawei. But on the other hand, the US is also hoping to go on selling its products to the Chinese market. The US’s crackdown on China is still escalating, reflecting the aim of US conservatives to decouple from China. There is therefore a growing tension [in the US] between choking China and selling to China.”

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On the drivers, dynamics and future prospects of the US-China chip war as viewed by researchers from China, see here:

New Fudan Report: US-China Chip War

Tech & Supply Chains | France-Germany | US-China

2. China’s weakness: Its lack of a domestic and independent chip supply chain

Interviewer: You have deep knowledge of China's industrial history. If we start counting from 2006, it has already been 15 [sic] years since China proposed its independent innovation development strategy. However, the shortcomings of [our] chip sector’s production chain have become increasingly evident in the past few years, resulting in a situation where every time a technology company emerges, it is blocked. But, you mentioned that there are in fact Chinese companies in every segment of China's semiconductor sector. [Moreover,] some of these segments are particularly well-developed, such as chip design. The real problem is that the supply and demand cycle within our domestic supply chain has not been formed. How should one understand this?

Lu Feng: “The starting point for discussing the problems associated with China's integrated circuit [IC] industry is based on the following fact: China has been throttled in this area not because it hasn't done [something], but because it has given up halfway several times and has lacked the determination to persevere through to the end.”

“China's IC industry is still lagging when compared with the US’s. But perhaps because of China’s long history of developing an IC industry, it has a characteristic that is quite rare in the world: there are Chinese companies in almost every segment of the semiconductor supply chain. This is a phenomenon that South Korea and Taiwan-China do not have. Not even present-day America can achieve this.”

“The second peculiarity is that Chinese companies in each segment of the semiconductor supply chain have so far not formed relatively strong supply-and-demand links with each other. They all loop up separately with the international supply chain and herein lies the fundamental problem of the Chinese IC industry … This has resulted in a situation where China's leading chip companies can be easily sanctioned by the US.”

3. China’s “follower system” has led to misguided policies towards the tech sector

Interviewer: So in order to deal with the US’s tech embargo, do you think that the key is to build up a supply chain [that depends on] internal circulation?

Lu Feng: “‘Internal circulation’ [内循环] is not the right expression, because semiconductors are products that must be sold all over the world so that costs can be reduced. But the need to form a domestic supply chain is a must. That is because under the US’s crackdown, we are faced with a ‘bloody’ [‘血淋淋’] fact: the technological advances made by each of China’s IC companies have to rely on the technological advances made by the whole of China’s IC industrial chain.”

“Without a supply chain in which Chinese companies from each segment [of this chain] form strong supply-and-demand links with each other, technological progress by any individual company will be suppressed by the US. Therefore, I call such a supply chain the ‘industrial base’ of China's integrated circuits. Once a domestic supply chain has been formed, we will no longer be afraid of the US’s tech embargos because the Chinese market is large enough.”

“The formation of this industrial base should become the primary goal and task for the development of China's IC industry. Since the release of ‘Document 18’ in 2000 to encourage the development of [China’s] software and IC industries, the State Council has, every few years, issued a document to support the development of ICs. However, their content is always about supporting the development of individual technologies. They have never had the goal of, or [any] content relating to, the development of an independent industrial base.”

“Major special projects are supported and funded by the state, evaluated by experts and use technological indicators as their criteria for establishing such projects. For example, does such and such a company have the ability to produce [some of] the most advanced chips in the world. However, such technological indicators use advanced technologies that already exist internationally as their point of reference. This may look grand and impressive, but proceeding in such a way is essentially akin to following in the footsteps of others. Therefore, I call such a system of support the ‘follower system’ [‘跟随体制’].”

“Projects under this ‘follower system’ [tend to] support a single technology and aim to emulate technologies that already exist abroad. Such projects merely follow the frontiers of international technological progress and are mostly undertaken by universities or research institutes. How useful these newly developed technologies then are [to us] is not a given [做出来有没有用还不一定]. It is no coincidence that after implementing these major special projects over three five-year plans, we are left feeling helpless when faced with US sanctions.”

“Today we can all see the achievements of China's new energy vehicles. This achievement stems from the independent innovation movement that emerged within the Chinese automobile industry some twenty years ago. At that time, the state (e.g. the Ministry of Science and Technology) already had the idea of using new energy technologies to overtake the competition [弯道超车]. This coincided with the rise of China's self-developed cars, which provided [China’s] national plans with [fertile] ground on which to build. Only companies that develop their products independently will try out new technologies and will think about making use of new developments in order to overtake the competition. And only those companies will be able to prompt more companies to take part in a new industrial chain. [Thanks to] the many companies that have been developing independently and that have formed an industrial chain or base for new energy vehicles [in China], we [can] now see our country’s success in becoming the world's top producer and seller of new energy vehicles.”

“In contrast, [China’s] integrated circuit industry, which has received no less state support than the new energy vehicle industry, is still in a state of disarray [一盘散沙的态势]. There are lessons to be learned from this.”

4. Fully independent manufacturing

Interviewer: Given the fragmentation [of our chip industry] you believe that China should build up an IC industrial base to deal with the US’s tech sanctions. So what exactly should be done at the policy level?

Lu Feng: “China's policy focus should be on pooling resources in order to boost the emergence of a domestic supply chain in China rather than on pursuing single projects or individual technological targets in a fragmented and uncoordinated manner.”

“Faced with the US’s tech war in the field of semiconductors, the Chinese government must be extremely determined and grasp the key links that will help drive the emergence of a [domestic] supply chain. At present, these key links include independent research and development (R&D) of lower-end technologies [底层技术]. But my particular emphasis here is on achieving fully independent manufacturing [抓全自主制造] and using it to open up the upper and lower [segments of the] supply chain.”

“What is fully independent manufacturing? It can be done in two steps:”

1. “The first step is the de-Americanisation of production lines [生产线非美化]. Chinese companies are already in the process of de-Americanising. That is, they will not use any American equipment throughout a production line, but will use equipment and materials from China, Japan, South Korea, Europe and other non-American countries.”

2. “The second step is to replace all foreign equipment and materials with domestically made equipment and materials. Clearly, the development of fully independent manufacturing pulls domestically made equipment and materials upstream and strengthens the interaction between manufacturing and [chip] design companies downstream. Whether or not these should be 100 per cent domestically produced will depend on the situation, the [guiding] principle being that there should be absolutely no risk of being cornered [by the US and others].”

5. Foundations first: Focusing on mature technologies

“Of course, our current development of fully independent manufacturing does not yet enable us to reach the world's [most] advanced standards. However, we can take one step back and start with the fully independent manufacturing of 28nm [chips]. This I believe is achievable. Some people have asked, ‘Huawei uses 7nm chips. Isn't doing fully independent manufacturing for 28nm [chips] retrograde? In fact, this involves a fundamental way of looking at technological progress. I will address two fundamental strategic issues here.”

“First, and as I was [already] stressing 20 years ago, a base of capabilities [能力基础, defined subsequently as an ‘independent industrial base’] is more important for innovation than the current level of technology. That is because it is only with capabilities that we can harness technological advances and innovate. At present, China’s IC industry has not established an independent industrial base – that is, a base of capabilities. It [Comment: unclear what “it” is referring to here] actually masks the fact that most individual companies do not work on advanced technologies [不做深层技术] because they all wrongly believe that they can rely on foreign technologies.”

“But as mentioned earlier, now more than ever the technological progress of individual companies depends on the technological progress of the entire industrial chain, i.e. the progress of the [IC sector’s] industrial base. The lack of such a base is our Achilles heel in the Sino-US tech war, so we must [begin by] fixing our weakest points.”

“China needs to muster the determination to do this. Based on the current state of the industry, we could start with 28nm [chips] and build a fully independent production line, thus unlocking the industrial chain and establishing a Chinese IC industrial base. Once the fully independent production line for 28nm [chips] has been shown to run smoothly, we will then be capable of establishing a fully independent production line for 14nm [chip], and so on and so forth.”

“As a matter of fact, no company in the world can [start] making 14nm chips without managing to make 28nm chips first, or 7nm without [first] making 14nm. This is because capabilities are developed cumulatively via product platforms. China’s development of its IC industry must have capability development rather than technological indicators as its strategic objective.”

6. Taking over the world’s market for mature chips

“In today's global IC market, demand and usage is highest for ‘mature’ chips. Advanced chips only make up a very small share of the market. In 2021, TSMC even expanded its production of 28nm mature chips significantly in order to respond to market shortages. Automotive chips are basically covered by 28nm, 45nm and 65nm mature process [nodes]. Only a minority of car chips, such as those for self-driving [cars], require the use of advanced process [nodes]. Chips in the field of engineering projects, such as aerospace, are still being used even at the micron level, albeit in limited quantities.”

“If China can truly form an industrial chain at the 28-60 nm technology level that is free from the interference of external forces, then not only will it have an industrial base [capable of] continuous technological progress, but it will also soon develop another type of competitive advantage. Chinese industry has an unparalleled ability: once it can make a product, it can quickly produce it at the lowest cost in the world and thus capture a large market share.”

“If China were to capture a major share of the world’s market for mature process chips, it would also gain a ‘bargaining position’ [‘讨价还价’的地位]: if the US were to block 20% of advanced process products [i.e. advanced chips], we would reciprocate by blocking 80% of mature process products. In any case, US car makers would not [then] go and use advanced chips (the price of cars would go up if they did). Besides, since all the companies that have a monopoly on advanced process products (including TSMC) rely heavily on mature process products in order to remain profitable, the loss of this market would seriously shake their confidence in [their ability to] block China.”

7. Setting up a body similar to the Central Special Committee

Interviewer: You have analysed the role of the ‘nationwide system’ [‘举国体制’, i.e. a system in China that enables a nationwide mobilisation of resources for key projects] in China's [quest for] independent innovation. So how can China's ‘new nationwide system’ [‘新举国体制’, emphasis added] play an effective role in resolving such issues as the [US’s] stranglehold on chips and key technologies [through], for instance, what you mentioned about fully independent manufacturing?

Lu Feng: “From the perspective of China’s industrial system as it is today, with our own large aircraft project now completed, our only remaining shortfall at the industrial level is in integrated circuits. This is therefore a major task that China must resolve.”

“Personally, my idea is that the Party Central Committee could set up a body similar to the Central Special Committee [中央专委]. Upwards, it would be directly accountable to the Party Central Committee. Downwards, it would be in direct charge of this project [向下直接抓这个项目] since no single department can take care of this major task alone.”

“As the development of China's IC industry must rely on the ability of companies to grow through market competition, developing this industry requires both the use of market mechanisms and also the integration and coordination of various forces (including market mechanisms).”

“When the large aircraft implementation plan was being discussed, one of the points of consensus within the discussion committee [论证委员会] was that the entity responsible for carrying out this national project had to be a company set up in accordance with [China’s] Modern Enterprise System [MEC] so as to ensure that the large aircraft project could transition directly into operating as a business once it had been completed. COMAC was set up according to this principle. As it turned out, during the entire process of developing the large aircraft to its test flights, sales and the running of its business, COMAC not only organised R&D, but also [helped] coordinate the supply chain. It is now in the process of smoothly transitioning into operating as a business. This large aircraft project is an excellent model for China’s construction of an IC industrial base.”

“The implementation of fully independent manufacturing projects must also rely on coordination beyond market mechanisms … The implementation of these projects must be accompanied by the cooperation of a large number of companies along the supply chain. Under [China’s] existing structural conditions, such cooperation cannot be formed quickly by companies simply negotiating with one another (at the very least financial risks will arise that exceed what these enterprises can shoulder) and must be directly coordinated by those government agencies that [are in charge of] carrying out major tasks.”

8. Weaponising China’s market and punishing western companies

Interviewer: So, on the China-US tech war, China doesn’t appear to have retaliated. But it’s not that China doesn’t have the means to.

Lu Feng: “I feel that China is currently still unable to make up its mind policy wise. The reason for this might be that it has not thought through a comprehensive strategy. It may also have to do with a lack of capacity to actually implement [such a plan].”

“First of all, we must be confident. Almost 20 years ago, when I took part in the discussions surrounding the implementation plan for [our] large aircraft project, we restarted the project after 28 years of stagnation. Talent and technology had almost come to a halt. But looking at how things stand today, we nevertheless succeeded. In this world, therefore, there are only technologies that Chinese people do not dare to do because of psychological barriers. There are no technologies that the Chinese people cannot do.”

“To deal with the US’s tech blockade, China's entire strategic thinking needs to change. Although the US has advantages when it comes to technology, China is not at a disadvantage in all respects.”

“Since the US has used its ‘nuclear weapon’ against China, China should strike back and use its own ‘nuclear weapon’. More specifically, the US’s method of suppressing China is to control the supply of semiconductors. Well then, [in return], China should and can control the demand for semiconductors.”

“For the past few years, the US has wanted both to have a stranglehold on China and to make money in the Chinese market. Well, China’s response should then be, since you want to choke me, I won’t let you make money. If the US is forcing a tech and industrial ‘decoupling’ [from China], then we should impose sanctions on all the foreign companies that are carrying out these orders to decouple from the Chinese market.”

“The US’s ‘nuclear weapon’ is technology and China’s ‘nuclear weapon’ is its market. A “nuclear weapon” versus a “nuclear weapon” – who is afraid of whom? If you have a market, but no technologies, you can [still] develop technologies. If you have technologies, but no market, then [having such] technologies will end up leading you nowhere.”

“In short, China must develop its own IC industry and must not let the US ‘have its cake and eat it too’ [‘鱼和熊掌’兼得].”

“Dutch lithography giant ASML’s main [source of] revenue comes from its mature process DUV lithography machines, not from its most advanced ones. The US is currently asking its own companies to stop supplying high-end chip-making equipment to China. It is also demanding that its allies take part in the containment [围堵] of the Chinese [tech] industry. However, ASML is currently not agreeing. If companies from the US and from other countries allied to the US were to do this, it would be equivalent to the US choking off supplies from companies that are part of China’s chip industrial chain. So why don’t we choke the demand off those companies [too]?”

“We must not be afraid to return to a ‘peace of terror’ [‘恐怖的和平’, later equated with a ‘balance of terror’]. We could demand that sales to the Chinese market of any company that [helps] implement the US’s sanctions against China be subject to investigations by the Chinese government. This way they will need to think twice about being an accomplice to the US. It is the other party that struck the first blow and imposed sanctions on China, it is not China that is infringing on any free trade.”

“ASML’s third quarter 2022 financial report shows that its largest sales come from its mature DUV [lithography equipment], including ArF and KrF [lasers]. The sales from its most advanced EUV lithography machines are very small, however its sales volume should not be belittled.”

“If ASML wants to follow the US’s policy and stop exporting its most advanced lithography machines to China, we could, after implementing reciprocal sanctions, ban [封杀] the sale of its ordinary lithography machines [普通光刻机] to the [Chinese] market … Doing so might even make it easier for Chinese companies such as Shanghai Microelectronics and their lithography machines to unlock China’s domestic market.”

“If NVIDIA follows the US government’s ban and stops selling its most advanced chips to China, then we could ban NVIDIA’s low- to mid-end chips from being sold in China. By the same token, Chinese companies in the low- to mid-end chip sector could [end up] with more opportunities for development. At the end of the day, no one can stop companies that can make low-end products from continuing to advance towards high-end ones.”

“For instance, for any foreign company that sanctions China in the tech field, [we should] implement controls on their orders [对其订单实施管制]. At the same time, we must remain steadfast in developing China's domestic IC supply chain.”

“If China were really to do this, it would allow areas in which we have shortcomings, such as chip manufacturing equipment and materials, to develop [faster]. All we are missing now is for the Chinese government to make up its mind and take a decision. If we build up our industrial base, who will be most afraid then? It will not be the Chinese who are afraid, but the Americans.”

“The above analysis explains why there is a need for a special body at the state level that can coordinate policies centrally. If we were to define the development of [China’s] IC industry as a major mission, then this mission will be far more complex than the ‘Two Bombs, One Submarine, One Satellite’ [‘两弹一艇一星’, an early project in the PRC aimed at developing the atomic and, later, hydrogen bombs, intercontinental ballistic missiles, nuclear submarines, and satellites], because it will involve many more elements relating to corporate growth, market competition and indirect policy coordination.”

“This type of complexity will place greater demands on the particular body that might be [in charge of] completing this major mission. It will have to have a deeper understanding of the dynamics of the industry, of technologies and of the laws of market competition. It will have to have a greater ability both to communicate with businesses and make use of market mechanisms. And its scope for formulating and coordinating policies will be even greater. For this body to work effectively, it will of course require a centrally approved mandate and the independent exercise of its powers. But, apart from this, it will also need to be sufficiently competent and will probably require organisational innovations, such as an ‘interface’ that increases its direct interactions with businesses and the market (a feature that the ‘Central Special Committee’ [中央专委] historically did not have).”

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Imposing sanctions on foreign companies that comply with US demands is an argument that has also been made by others in China. See for example the following piece by the Shanghai-based consultancy ICWise (芯谋研究):

Chip War | US National Defence Strategy | Rishi Sunak | Germany-China | China-Russia

9. An eye for an eye, a tooth for a tooth

Interviewer: Some might argue that if China were to start engaging in fully independent manufacturing, this would clearly indicate its intention to decouple. China's relations with the US and its allies might [then] become increasingly frosty to the extent that the US and the West might in the short term carry out their ban on tech exports to China even more stringently. This would result in what you call ‘a peace of terror or balance of terror’ [‘恐怖的和平或者恐怖的平衡’]. This may be the reason why we do not yet have the resolve to counter it [i.e. the West’s tech crackdown]?

Lu Feng: “It was the US which started this [是美国先动的手]. So far there are probably only a few people who are thinking about how to counteract the US’s tech blockade.”

“In my opinion, the effectiveness of subsidies is not as significant as one might imagine. [China’s] chip ‘Big Fund’ and other major projects from the past have proven this to be true. That is because, they don’t get to the heart of the strategy.”

“The fact is that the world cannot decouple and decoupling is not good for anyone. That is our starting point and I myself also believe this to be true. However, if the other party wants to break us and decouple from us forcibly, we must fight back [我们必须还手]. My principle is to take a tooth for a tooth and an eye for an eye. We cannot just [accept] that at the same time as the US and its companies are carrying out a tech ban on China, US companies are making money out of us. Inside and out, they are taking advantage [of us]. This will affect China's development.”

“China cannot back off because, if you do, they will [simply] ‘take a mile when given an inch’ [得寸进尺]. There is also no need for China to be afraid. The US has its strengths, but we need to be aware of our own strengths.”

“We need to see that China's particularly ‘complete’ industrial system [齐全的工业体系] is a strategic asset for us. It is the source of China's power and an advantage that we have. [Our] industrial system includes both low-end and high-end [industries]. Be they services in tech R&D or labour-intensive [industries], both are important. One is not superior to the other and neither can replace the other. In previous years, a large number of low-end industries in China have been forced to shut down, stop producing, merge and/or change their line of products [被迫关停并转] so as to reduce production capacity and upgrade [China’s industrial base]. This actually dealt a big blow to China's industrial system. Since traditional industries are the high-tech industry's biggest customers, reducing the weight of these traditional industries will also have a [negative] impact on [China’s] high-tech industry.”

“Anyone thinking that upstream industries should be developed at the expense of eliminating downstream industries is like believing that people should climb trees in order to catch fish [缘木求鱼, i.e. such an approach is both wrong and futile].”

Interviewer: Since you don't advocate decoupling either, how can China not decouple while at the same time establishing fully independent manufacturing in the IC sector?

Lu Feng: “Independent innovation is not about working on technology behind closed doors, but about persevering in developing technologies ourselves while learning from others. So how do we go about achieving both cooperation with the US and its western allies on an equal footing and at the same time independent innovation?”

“Our strategy should be to seek cooperation in the midst of [all this] struggling [斗争] and to persevere in developing our own technologies and industries under open conditions. If we give up this struggle, the US will unilaterally choke us. We have our strengths, too. We have to play to these and do what we are supposed to do.”

“We are not expecting that Chinese companies alone will be the strongest in all parts of the semiconductor industry. This would be difficult for us to achieve. What we would like is to establish trading relationships based on equality, for us to co-exist with the world, [a world in which] each [country] has its own strengths. However, we do not accept unequal relationships where people can just be unscrupulously choked out by others, as the US does.”

“There is a common saying in Beijing that describes typical human behaviour: you can't suppress your anger when you see a coward [见怂人压不住火]. When you think about it, this saying is actually talking about human nature. The more China backs down, the more frequent and heavier the blows [by the US] will become. Thus, it is time for China to harden its fist and develop the ability to grab hold of the other side by the ‘throat’ [扼住对方的‘咽喉’的功力]. Only then will the other party acknowledge that we both belong to a ‘community with a shared future for mankind’.”

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Yao Yang (姚洋), a well-known economist at Peking University, recently argued that the US’s tech decoupling from China had been exacerbated by overly strong calls within the PRC for technological independence (or what Lu Feng would call “independent innovation” and “independent manufacturing”). However, Yao also suggests that, if the US were to extend its chip ban too far, Beijing should retaliate and use the banning of rare earth exports as a potential weapon:

PKU Economist Yao Yang on US-China Tech War and China's Economy