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With Extensive New Export Regulations, US Hopes To Cripple China's Chip Industry

With Extensive New Export Regulations, US Hopes To Cripple China's Chip Industry
The Biden administration on Friday published a sweeping set of export controls, 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 go into effect immediately, build on restrictions sent in letters earlier 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 successful, they have the potential to stymie China's chip manufacturing industry by forcing American and foreign companies that use US technology to discontinue 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 described the policies as "harkening back to the tough regulations of the Cold War."
Senior government officials said during a press conference on Thursday to preview the rules that 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 did admit, however, that they had not received any assurances from allied nations that similar measures would be implemented, 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 the United States' authority to control chip exports to China made with American tools is based on a broadening of the so-called foreign direct product rule. It had previously been expanded to give the US government authority to control overseas chip exports to Chinese telecoms giant Huawei Technologies Co Ltd, as well as to halt the flow of semiconductors to Russia following its invasion of Ukraine.
The expanded restrictions were imposed on Friday by the Biden administration on China's IFLYTEK, Dahua Technology, and Megvii Technology, which were added to the entity list in 2019 amid allegations that they assisted Beijing in the suppression of its Uyghur minority group.
The rules, which were published on Friday, also prohibit the shipment of a wide range of chips used in Chinese supercomputers.
The definition of a supercomputer in the regulations states that it must have more than 100 petaflops of computing power and 6,400 square feet of floor space. According to two industry sources, this definition may also apply to some commercial data centers at Chinese tech giants.
The move, according to American Enterprise Institute defense policy expert Eric Sayers, shows a new attempt by the Biden administration to contain China's advancements rather than merely 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 all over the world started to struggle with the most recent American action, and shares of companies that make equipment for semiconductor manufacturing fell.
Chipmakers' representative organization, the Semiconductor Industry Association, said it was researching the rules and urged the US to "implement the rules in a targeted way - and in collaboration with international partners - to help level the playing field."
The United States raised tensions with Beijing earlier on Friday by adding 30 additional Chinese companies to a list of businesses that U.S. officials are prohibited from inspecting. This move also started a 60-day clock that could result in much harsher penalties.
When US authorities are unable to conduct on-site visits to determine if a company can be trusted to receive sensitive US technology, it is added to the unverified list, forcing US suppliers to take extra precautions when shipping to them.
If a government prevents US officials from conducting site checks at companies on the unverified list, US authorities will begin the process of adding them to the entity list after 60 days, according to a new policy announced on Friday.
Entity listing YMTC would exacerbate already-increasing tensions with Beijing and force its US suppliers to obtain difficult-to-obtain licenses from the US government before shipping even the most basic items.
The new rules also formallyize letters sent to Nvidia Corp. and Advanced Micro Devices Inc. (AMD) restricting shipments of chips used in supercomputing systems, which are used by countries all over the world to develop nuclear weapons and other military technologies, to China. These systems are used to create memory chip manufacturers there.
The move to broaden restrictions on the shipments of technologies from KLA, Lam, Applied Materials, Nvidia, and AMD to China, as well as a reprieve for foreign businesses operating in China, were first reported by Reuters.
The equipment supply for Samsung and SK Hynix's ongoing chip production in China won't be significantly disrupted, according to a statement from South Korea's industry ministry on Saturday. However, it was necessary to reduce uncertainty by consulting with U.S. export control authorities.

Christopher J. Mitchell

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