US aims to hamper China’s chip industry with sweeping new export rules

US aims to hamper China’s chip industry with sweeping new export rules

Written by Stephen Nellis, Karen Freifeld and Alexandra Alper

(Reuters) – The Biden administration published a comprehensive set of export controls on Friday, including a measure to isolate China from some semiconductor chips made anywhere in the world with U.S. equipment, dramatically expanding its reach in its attempt to slow Beijing’s technology and military. progress.

The rules, some of which take effect immediately, are based on restrictions sent in this year’s letters to major tool makers KLA Corp. Lamm Research Foundation (NASDAQ:) and Applied Materials Inc (NASDAQ:), effectively requiring them to halt shipments of equipment to wholly-owned factories in China that produce advanced logic chips.

The set of measures may amount to the largest shift in US policy toward shipping technology to China since the 1990s. If effective, it could hinder China’s chip industry by forcing US and foreign companies that use US technology to cut support for some of China’s leading factories and chip designers.

This will set the Chinese back years, said Jim Lewis, a technology and cybersecurity expert at the Center for Strategic and International Studies (CSIS), a Washington, DC-based think tank, and said policies reverted to the strict regulations of the height of the Cold War.

“China is not going to give up on the chip industry…but that will really slow it down.”

Briefing reporters Thursday to review the rules, senior government officials said many of the measures are aimed at preventing foreign companies from selling advanced chips to China or providing Chinese companies with tools to make their own advanced chips. But they acknowledged that they did not believe any promises that the allied countries would implement similar measures and that discussions with those countries were continuing.

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“We realize that the unilateral controls that we are applying will lose their effectiveness over time if other countries do not join us,” said one of the officials. โ€œAnd we risk damaging US tech leadership if foreign competitors do not come under similar controls.โ€

The expansion of US authorities to control exports to China of American-made chips is based on the expansion of the so-called foreign direct product base. It was previously expanded to give the US government the power to control exports of overseas-made chips to Chinese telecom giant Huawei Technologies Co Ltd and later to stem the flow of semiconductors to Russia after its invasion of Ukraine.

On Friday, the Biden administration applied the expanded restrictions to China’s IFLYTEK, Dahua Technology and Megvii Technology, companies that were added to the entity list in 2019 over allegations that they helped Beijing suppress the Uighur minority group.

The rules published on Friday also ban shipments of a wide variety of chips for use in Chinese supercomputing systems. The rules define a supercomputer as any system with more than 100 petaflops of computing power in a floor space of 6,400 square feet, a definition that two industry sources said could also infect some commercial data centers of Chinese tech giants.

Eric Sayers, a defense policy expert at the American Enterprise Institute, said the move reflects a new attempt by the Biden administration to contain Chinese advances rather than simply seeking a level playing field.

“The scope of the base and the potential impacts are absolutely astounding, but the devil will of course be in the implementation details,” he added.

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Companies around the world are starting to grapple with the latest US action, as stocks of semiconductor manufacturing equipment makers have plummeted.

The Semiconductor Industry Association, which represents chip makers, said it was studying the regulations and urged the US to “implement the rules in a targeted manner – and in cooperation with international partners – to help level the playing field.”

Earlier on Friday, the United States added China’s largest memory chip maker YMTC and 30 other Chinese entities to the list of companies that US officials cannot screen, escalating tensions with Beijing and initiating a 60-hour day that could lead to more sanctions. strictness.

Companies are added to the unverified list when US authorities cannot complete site visits to determine if they can be trusted to receive sensitive US technology, forcing US suppliers to exercise extra caution when shipping to them.

Under a new policy announced Friday, if the government prevents US officials from conducting site inspections at companies on the unverified list, US authorities will begin the process of adding them to the entity list after 60 days.

Including YMTC on the entity list would escalate already rising tensions with Beijing and force its US suppliers to seek hard-to-obtain licenses from the US government before shipping even the most low-tech items.

The new regulations will also severely restrict the export of US equipment to Chinese memory chip makers and formalize letters sent to Nvidia (NASDAQ ๐Ÿ™‚ Corp and Advanced Micro Devices Inc (NASDAQ :)) that restrict shipments to China of chips used in supercomputing systems used by countries around the world. The world depends on the development of nuclear weapons and other military technologies.

Reuters was the first to report on key details of the new restrictions on memory chip makers, including a delay for foreign companies operating in China and moves to expand restrictions on shipments to China of technologies from KLA, Lam, Applied Materials, Nvidia and AMD.

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South Korea’s Ministry of Industry said in a statement on Saturday that there will be no major disruption to equipment supplies to Samsung (KS ๐Ÿ™‚ and the current SK Hynix chip production in China.

It added, however, that it was necessary to reduce uncertainty by consulting with US export control authorities.

China’s Ministry of Commerce said in a statement on Monday that it strongly opposes the US move as it harms normal trade and economic exchange between companies in the two countries and threatens the stability of global supply chains.

“The United States must stop the wrongdoing immediately and treat companies around the world fairly, including Chinese companies.”

On Saturday, Chinese Foreign Ministry spokesman Mao Ning called the move an abuse of trade measures aimed at strengthening the “technological hegemony” of the United States.

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