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U.S. aims to hobble China's chip industry with sweeping new export rules

Stock Markets Oct 08, 2022 04:35AM ET
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© Reuters. FILE PHOTO: 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/File Photo
 
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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 (NASDAQ:LRCX) and Applied Materials Inc (NASDAQ:AMAT), 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.

"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.

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 (NASDAQ:NVDA) Corp and Advanced Micro Devices Inc (NASDAQ: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.

South Korea's industry ministry said in a statement on Saturday there would be no significant disruption to equipment supply for Samsung (KS:005930) 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.

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".

U.S. aims to hobble China's chip industry with sweeping new export rules
 

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Comments (16)
jason xx
jason xx Oct 09, 2022 8:47AM ET
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China made their decision to side with Russia. They could have probably forced an end to the war if they sided with us against Russia. They deserve to burn with Russia
Mike ND
Mike ND Oct 08, 2022 12:55PM ET
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Chinas gonna collapse soon anyways
Brad Albright
Brad Albright Oct 08, 2022 8:59AM ET
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The US is under no obligation to assist China in developing security threats. In fact, it is responsible leadership by Biden to take this step, no matter the whining from the America haters here.
Stephen Fa
Stephen Fa Oct 08, 2022 8:59AM ET
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The Republicans signaled the alarm on China long before Democrats and the Bidens. Remember the fact that Hunter and the "big guy" were "in bed" financially with China.
Brad Albright
Brad Albright Oct 08, 2022 8:59AM ET
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Zzzzzzzzz.
jason xx
jason xx Oct 08, 2022 8:59AM ET
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So the Orange t. a. r. d. Nation should be happy with the move then?
Sam Dur
Sam Dur Oct 08, 2022 8:59AM ET
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@Brad - stop seing the world as black and white, good guys against the bad guys. The reality is much more complicated and only when all the sides respect the others - you can expect to be reaching a stable equilibrium wher all the participants' maximally satisfied. When you disrespect other countries, because they are "not democratic enough" for you and for America - it just another step to the confrontation, chaos and war. I'm sure if you put yourself at their place, you wouln't accept disrespect and patrony from another nation. You'd be claiming your rights for a normal economic and strategic development of your country with no dictating from outside.
Wooohooo TT
Wooohooo TT Oct 08, 2022 3:19AM ET
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It is sad to see the insecure feeling of US. A country relies on war and conflicts to prosper since establishment in the slavery era. A world led by this country is full of chaos and disasters.
Yellow Owl
Mystic_Owl Oct 08, 2022 3:19AM ET
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Using Tolkien's analogy, its basically Sauron's world vision. EU is basically Isengard with other puppet countries acting as the supporting factions. Obviously, nobody wants to take orders always.
Joah Jones
Joah Jones Oct 08, 2022 1:43AM ET
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Good to see western leaders strategize - long overdue!
Jam Tha
Jam Tha Oct 08, 2022 1:27AM ET
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This how American hitler behaves in a way.. well that's good least pressure force to other countries to develop own tech instead rely on US
Brad Albright
Brad Albright Oct 08, 2022 1:27AM ET
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You need to Google hilter.
taylor jason
taylor jason Oct 08, 2022 1:27AM ET
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because not selling chips to China correlates to committing genocide. what in logic. do you actually read what you post? I'm sure you were all for trumps trade war with China
Ac Tektrader
Ac Tektrader Oct 07, 2022 8:17PM ET
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finally a response to China's use of high tech to threaten it's neighbors...
Wooohooo TT
Wooohooo TT Oct 07, 2022 8:17PM ET
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I guess you mean US's use of weapon to threat the world. There are more Nordstream bombing to come.
taylor jason
taylor jason Oct 07, 2022 8:17PM ET
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last I checked every country has weapons
Ac Tektrader
Ac Tektrader Oct 07, 2022 8:14PM ET
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more scam and spam......
Brad Albright
Brad Albright Oct 07, 2022 6:44PM ET
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Plane and simple, this is the US getting tighter control over American technology in order to maintain military advantage. It is not in the US interests to help China achieve technological equality with the US. Any country in the same position would do the same.
David Bradbury
David Bradbury Oct 07, 2022 6:44PM ET
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A little late for that
Kris Jay
Kris Jay Oct 07, 2022 6:44PM ET
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and only 30 years too late.  the warnings in the mid-1990s were scoffed at.
Sam Dur
Sam Dur Oct 07, 2022 6:44PM ET
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Free markets? Free competition? Are there no economic principles anymore, when free trade is not good for the Pax Americana? If US keeps bullying China, Russia, India you can guess they will not let it be. US unipolar World - OUT, Mutual interests of multiple powerful economies cooperation World - IN!
Brad Albright
Brad Albright Oct 07, 2022 6:44PM ET
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Human rights and moral principles overtake economic principles.
Stephen Fa
Stephen Fa Oct 07, 2022 6:44PM ET
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Morality according to Brad. lol
Art Carrano
Art Carrano Oct 07, 2022 4:05PM ET
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Still trying to start WW3.
 
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