U.S. aims to hobble China's chip industry with sweeping new export rules
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[October 10, 2022] By
Stephen Nellis, Karen Freifeld and Alexandra Alper
(Reuters) - The Biden administration
published a sweeping set of export controls on Friday, including a
measure to cut China off from certain semiconductor chips made anywhere
in the world with U.S. equipment, vastly expanding its reach in its bid
to slow Beijing's technological and military advances.
The rules, some of which take immediate effect, build on restrictions
sent in letters this year to top toolmakers KLA Corp, Lam Research Corp
and Applied Materials Inc, effectively requiring them to halt shipments
of equipment to wholly Chinese-owned factories producing advanced logic
chips.
The raft of measures could amount to the biggest shift in U.S. policy
toward shipping technology to China since the 1990s. If effective, they
could hobble China's chip manufacturing industry by forcing American and
foreign companies that use U.S. technology to cut off support for some
of China's leading factories and chip designers.
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"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 D.C.-based think tank, who said the
policies harken back to the tough regulations of the height of the Cold
War.
"China isn't going to give up on chipmaking ... but this will really
slow them (down)."
In a briefing with reporters on Thursday previewing the rules, senior
government officials said many of the measures were aimed at preventing
foreign firms from selling advanced chips to China or supplying Chinese
firms with tools to make their own advanced chips. They conceded,
however, that they had not secured any promises that allied nations
would implement similar measures and that discussions with those nations
are ongoing.
"We recognize that the unilateral controls we're putting into place will
lose effectiveness over time if other countries don't join us," one
official said. "And we risk harming U.S. technology leadership if
foreign competitors are not subject to similar controls."
The expansion of U.S. powers to control exports to China of chips made
with U.S. tools is based on a broadening of the so-called foreign direct
product rule. It was previously expanded to give the U.S. government
authority to control exports of chips made overseas to Chinese telecoms
giant Huawei Technologies Co Ltd and later to stop 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
added to the entity list in 2019 over allegations they aided Beijing in
the suppression of its Uyghur minority group.
The rules published on Friday also block shipments of a broad array of
chips for use in Chinese supercomputing systems. The rules define a
supercomputer as any system with more than 100 petaflops of computing
power within a floor space of 6,400 square feet, a definition that two
industry sources said could also hit some commercial data centers at
Chinese tech giants.
Eric Sayers, a defense policy expert at the American Enterprise
Institute, said the move reflects a new bid by the Biden administration
to contain China's advances instead of simply seeking to level the
playing field.
"The scope of the rule and potential impacts are quite stunning but the
devil will of course be in the details of implementation," he added.
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![](../images/101022PIX/busine27.jpg)
U.S. President Joe Biden delivers
remarks during a signing event for the CHIPS and Science Act of
2022, on the South Lawn of the White House in Washington, U.S.,
August 9, 2022. REUTERS/Evelyn Hockstein
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Companies around the world began to wrestle with the latest U.S.
action, with shares of semiconductor manufacturing equipment makers
falling.
The Semiconductor Industry Association, which represents chipmakers,
said it was studying the regulations and urged the United States to
"implement the rules in a targeted way - and in collaboration with
international partners - to help level the playing field."
Earlier on Friday, the United States added China's top memory
chipmaker YMTC and 30 other Chinese entities to a list of companies
that U.S. officials cannot inspect, ratcheting up tensions with
Beijing and starting a 60 day-clock that could trigger much tougher
penalties.
Companies are added to the unverified list when U.S. authorities
cannot complete on-site visits to determine if they can be trusted
to receive sensitive U.S. technology, forcing U.S. suppliers to take
greater care when shipping to them.
Under a new policy announced on Friday, if a government prevents
U.S. officials from conducting site checks at companies placed on
the unverified list, U.S. authorities will start the process for
adding them to the entity list after 60 days.
Entity listing YMTC would escalate already-rising tensions with
Beijing and force its U.S. suppliers to seek difficult-to-obtain
licenses from the U.S. government before shipping them even the most
low-tech items.
The new regulations will also severely restrict export of U.S.
equipment to Chinese memory chip makers and formalize letters sent
to Nvidia Corp and Advanced Micro Devices Inc (AMD) restricting
shipments to China of chips used in supercomputing systems that
nations around the world rely on to develop nuclear weapons and
other military technologies.
Reuters was first to report key details of the new curbs on memory
chip makers, including a reprieve for foreign companies operating in
China and the moves to broaden restrictions on shipments to China of
technologies from KLA, Lam, Applied Materials, Nvidia and AMD.
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South Korea's industry ministry said in a statement on Saturday
there would be no significant disruption to equipment supply for
Samsung and SK Hynix's existing chip production in China.
However, it was necessary to minimise uncertainty through
consultation with U.S. export control authorities, it added.
China's commerce ministry said in a statement on Monday that it
firmly opposes the U.S. move as it hurts the normal trade and
economic exchange between companies in the two countries and
threatens the stability of global supply chains.
"The U.S. should stop the wrongdoings immediately and give fair
treatment to companies from all over the world, including Chinese
companies."
On Saturday, China's foreign ministry spokesperson Mao Ning called
the move an abuse of trade measures designed to reinforce the United
States' "technological hegemony".
(Reporting by Stephen Nellis in San Francisco and Karen Freifeld in
New York; Additional reporting by David Shepardson in Washington,
Joyce Lee in Seoul and Yew Lun Tian in Beijing; Editing by Ana
Nicolaci da Costa and Clarence Fernandez)
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