US announces broad range of measures aimed at barring China from developing advanced chip manufacturing capabilities and modernising military
Shares in Chinese tech leaders Alibaba and Tencent fell on Monday, along with those of Chinese chip companies, as investors evaluated the likely impact of sweeping US sanctions announced on Friday.
Alibaba shares were down about 2.7 percent in Hong Kong trading as of 9 a.m. BST, while Tencent was down about 2.5 percent on fears around the impact the restrictions could have on the data centres the two companies rely on.
Semiconductor Manufacturing International Corp. (SMIC), a major contract chipmaker, fell 3.5 percent, while shares in Chinese chip manufacturing equipment maker Naura fell by the daily limit of 10 percent and Hua Hong Semiconductor was down by about 9.5 percent.
The new restrictions make use of export controls first deployed against telecommunications equipment maker Huawei, but are applied more broadly to target the ability of mainland China to produce cutting-edge semiconductors.
The restrictions also target China’s rapidly developing artificial intelligence industry and its ability to use cutting-edge technology such as supercomputers to develop military applications such as nuclear weapons or hypersonic missiles.
In 2020 the US broadened a provision known as the Foreign-Direct Product Rule, effectively allowing it to place export restrictions on products made anywhere in the world that contain US technology.
The new rule was initially used to cut off technology to Huawei and then to Russia following its invasion of Ukraine earlier this year.
On Friday the broadened rule was applied to China’s IFLYTEK, Dahua Technology and Megvii Technology, which were added to the “entity list” trade blacklist in 2019.
The new measures also block shipment of an array of chips for use in Chinese supercomputing systems, defined as having more than 100 petaflops of computing power within a floor space of 6,400 square feet.
Some industry watchers said this could also affect the commercial data centres used by Chinese tech companies.
The measures formalise letters sent to Nvidia and AMD earlier this year barring shipments of chips used in supercomputers and for artificial intelligence systems.
US companies are to be barred from exporting advanced chip manufacturing tools to China, affecting companies such as SMIC, Yangtze Memory Technologies Co (YMTC) and ChangXin Memory.
YMTC and 30 other companies were also placed on a list of “unverified” companies, beginning a 60-day countdown that could lead to these firms being added to the entity list, effectively blocking US firms from supplying them with even the most basic technology.
The new rules also prohibit “US persons”, including individuals and companies, from providing direct or indirect suport to Chinese companies involved in advanced chip manufacturing.
The US Commerce Department said it was including exceptions for Chinese factories owned by companies from the US or allied countries, such as South Korea or Taiwan, that are producing chips for export, a move designed to reduce disruption to the already struggling semiconductor supply chain.
Earlier this year authorities sent letters to US semiconductor manufacturing equipment makers such as Applied Materials and Lam Research barring them from supplying advanced tools to Chinese factories.
The broadest of the new restrictions affect exports from US companies such as AMD, Nvidia, Applied Materials and Lam Research, and the US acknowledged it has not yet secured agreements with allied countries to place similar restrictions on their firms.
This means China could potentially obtain the technology it needs elsewhere, circumventing the restrictions while dealing a commercial blow to US companies.
“We recognise that the unilateral controls we’re putting into place will lose effectiveness over time if other countries don’t join us,” a senior US government official told reporters. “And we risk harming US technology leadership if foreign competitors are not subject to similar controls.”
‘Level the playing field’
The Semiconductor Industry Association said it was studying the new regulations and urged the US to “implement the rules in a targeted way – and in collaboration with international partners – to help level the playing field”.
China’s foreign ministry on Saturday called the new rules an abuse of trade measures designed to reinforce the US’ “technological hegemony”.