(Bloomberg) – China has criticized the expanded US restrictions on its access to semiconductor technology, saying they would hurt supply chains and the global economy.
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President Joe Biden’s administration announced export restrictions on Friday, escalating tensions between the two countries and adding complications for an industry facing a slump in demand.
The measures are aimed at halting China’s bid to build its own chip industry and improve its military capabilities. These include restrictions on the export of some types of chips used in artificial intelligence and supercomputing, and stricter rules on the sale of semiconductor manufacturing equipment to Chinese companies.
China “has invested resources in developing supercomputing capabilities and is aiming to become the world leader in artificial intelligence by 2030,” said Thea D. Rozman Kendler, deputy secretary of commerce for export administration. “It uses these capabilities to monitor, track and monitor its own citizens and advance its military modernization.”
Chinese Foreign Ministry spokesman Mao Ning said Saturday that the measures, which come into effect this month, are unfair and “would also hurt the interests of US companies,” according to an official briefing transcript. They are “delivering a blow to global industrial and supply chains and the global economic recovery,” she said.
The US is trying to ensure that Chinese companies do not transfer technology to the country’s military and that chipmakers in China do not develop the ability to make advanced semiconductors themselves.
The regulations come at a difficult time for the chip industry, which is suffering from a sharp drop in demand for PC and smartphone components. Shares of many of the world’s largest semiconductor makers tumbled on Friday after reports the slump could be worse than previously thought.
The story goes on
The government’s actions add another layer of uncertainty for investors already trying to figure out how much semiconductor demand could shrink. Companies like Applied Materials Inc. and Intel Corp. cannot easily move away from China, the largest single market for their products and a key element of a global supply chain for electronics used around the world.
Chipmaker stocks struggled throughout 2022 after the group rose between 40% and 60% for three straight years. The Philadelphia Stock Exchange Semiconductor Index is down nearly 40% so far this year on its way to its biggest annual decline since 2008, and recently fell to its lowest level since November 2020.
Widespread Losses
Losses were widespread, with almost every component of the industry benchmark index in negative territory this year. Nvidia Corp. and Advanced Micro Devices Inc. are down nearly 60%. AMD on Thursday reported preliminary third-quarter revenue that came in weaker than expected. AMD and Nvidia have already revealed that China-related restrictions on AI chips will hurt their sales.
Nvidia said on Friday that the broader regulations will not have a “material impact on our business,” which is already constrained by previous export controls.
When the new rules come into effect, suppliers of chips used in Chinese supercomputers and related equipment will find it more difficult to get permission to fill orders. According to senior Commerce Department officials, they should assume applications will be denied.
The trade has also imposed a series of restrictions on the supply of US machines capable of making advanced semiconductors. It’s about the types of memory chips and logic components that are at the heart of the most modern designs.
While there will be more leeway for foreign companies that need technology for their own operations in China — or for parties that can show they’re making things there for immediate export elsewhere — Commerce said it enforces the rules and will also stop supporting existing deployments of machines that fall under the restrictions.
While the US is home to the largest block of companies that develop vital electronic components and provide the complex machinery to manufacture them, other regions have capabilities that could undermine some of the government’s efforts.
Commerce Department officials acknowledged that cooperation with overseas was necessary to avoid impeding the initiatives and said talks are underway with other parties around the world on the issue.
The restrictions on chip fabrication equipment apply to the production of the following:
Logic chips using so-called non-planar transistors made with 16 nanometer technology or anything more advanced. In general, the smaller the nanometer, the more powerful the chip.
18-nanometer dynamic random access memory chips.
Nand-style flash memory chips with 128 layers or more.
For companies with plants in China, including non-US firms, the rules will create additional hurdles and require government approval.
South Korea’s SK Hynix Inc. is one of the world’s largest memory chip makers and has facilities in China as part of a supply network that ships components around the world.
“The new measures limit sales of devices for memory products of a certain technology level or higher, but allow Korean chipmakers to export if they have a license from the Ministry of Commerce,” the company said in a statement. “SK Hynix stands ready to make its best efforts to obtain the US government license and will work closely with the Korean government to do so.”
Separately, Commerce added more names to a list of companies it considers “unverified,” meaning it doesn’t know where their products end up being used. The 31 entrants are all Chinese. This suggests that US suppliers will face new hurdles in selling technology to these companies.
The biggest name to add to the list is Yangtze Memory Technologies Co. Widely regarded as China’s best opportunity to break into the front ranks of the industry, the memory chip maker has made strides with advanced products for chip-based storage.
The US chip industry has expressed concerns that overly aggressive action could disadvantage domestic companies. They worry that losing sales in China will affect their ability to invest in innovation and potentially help overseas competitors.
The Semiconductor Industry Association, which represents all of the largest U.S. chipmakers, said it is reviewing the impact of the new export controls and will ensure compliance.
A bill signed by Biden in August promises to inject around $52 billion into the US semiconductor industry.
(Updates with Chinese Foreign Ministry response in sixth paragraph.)
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