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China says Biden’s new curbs on chip technology will hurt recovery

(Bloomberg) — China criticized expanded U.S. restrictions on access to semiconductor technology, saying they will harm supply chains and the world economy.

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President Joe Biden’s administration announced the export restrictions on Friday, escalating tensions between the two countries and adding complications for an industry facing falling demand.

The measures seek to halt China’s drive to develop its own chip industry and advance its military capabilities. They include restrictions on the export of certain types of chips used in artificial intelligence and supercomputing and tighten rules on the sale of semiconductor manufacturing equipment to any Chinese company.

China “has devoted resources to developing supercomputing capabilities and is seeking to become a world leader in artificial intelligence by 2030,”[ads1]; said Assistant Commerce Secretary for Export Administration Thea D. Rozman Kendler. “It uses these capabilities to monitor, track and monitor its own citizens, fueling its military modernization.”

Chinese Foreign Ministry spokesman Mao Ning said Saturday that the measures, which begin to take effect this month, are unfair and will “also harm the interests of US companies,” according to an official briefing. They “deal a blow to global industrial and supply chains and world economic recovery,” she said.

The United States 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 rules come at a difficult time for the chip industry, which is suffering from a sharp drop in demand for components for personal computers and smartphones. Shares of many of the world’s biggest semiconductor makers fell on Friday after reports that the decline could be even worse than expected.

The government’s actions add another layer of uncertainty for investors already trying to figure out how much demand for semiconductors might shrink. Companies such as Applied Materials Inc. and Intel Corp. cannot easily walk away from China, the single largest market for its products and a key part of a global supply chain for electronics used everywhere in the world.

Chipmaker shares have struggled through 2022, after three straight years in which the group climbed between 40% and 60%. The Philadelphia Stock Exchange Semiconductor Index is down nearly 40% so far this year, on track for its biggest annual drop since 2008, and it recently fell to its lowest level since November 2020.

Widespread losses

Losses have been extensive, with nearly all components of the industry’s benchmark index in negative territory this year. Nvidia Corp. and Advanced Micro Devices Inc. have fallen nearly 60%. AMD on Thursday reported preliminary revenue for the third quarter that was weaker than expected. AMD and Nvidia have already revealed that the China-related restrictions on AI chips will hurt their sales.

Nvidia said on Friday that the broader regulations will not have “a significant impact on our business,” which is already limited by previous export controls.

When the new rules take effect, it will be more difficult for suppliers of chips used in Chinese supercomputers and related equipment to get permission to fill orders. They should assume that requests will be rejected, according to senior Commerce Department officials.

Trade also places a number of restrictions on supplying US machinery capable of making advanced semiconductors. It follows the types of memory chips and logic components that are at the heart of state-of-the-art designs.

While there will be more leeway for foreign companies that need technology for their own operations in China — or for parties that can prove they are making things there for immediate export elsewhere — Commerce said it will enforce the rules and also cut support for existing deployments of machines covered by the restrictions.

While the United States is home to the largest bloc of companies that design key electronic components and supply the complex machinery to manufacture them, other regions have capabilities that could undermine some of the government’s efforts.

Commerce Department officials acknowledged that foreign cooperation is needed to avoid hampering the initiatives, and said there are talks with other parties around the world on the topic.

Restrictions on tile manufacturing equipment cover production of the following:

  • Logic chips that use so-called non-planar transistors made with 16-nanometer technology or something more advanced than that. Generally speaking, the smaller the nanometer, the more capable the chip.

  • 18-nanometer dynamic random access memory chips.

  • Nand-style flash memory chips with 128 layers or more.

For companies with factories in China, including non-US firms, the rules will create additional hurdles and require the government to sign off.

South Korea’s SK Hynix Inc. is one of the world’s largest makers of memory chips and has facilities in China as part of a supply network that ships components around the world.

“The new measures restrict equipment sales for memory products with 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 is ​​ready to make every effort to obtain the US government’s license and will work closely with the Korean government for this.”

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 additions are all Chinese. It indicates that US suppliers will face new obstacles in selling technologies to these devices.

The biggest name to be added to the list is Yangtze Memory Technologies Co. The memory chip maker is considered to be China’s best effort to break into the top ranks of the industry and has made progress with advanced products for chip-based storage.

The U.S. chip industry has expressed concern that moving too aggressively could put domestic companies at a disadvantage. They worry that losing sales in China will hurt their ability to spend on innovation and potentially help competitors abroad.

The Semiconductor Industry Association, which represents all the major US chipmakers, said it is evaluating the impact of the new export controls and will ensure compliance.

A bill signed by Biden in August promises to add roughly $52 billion to the U.S. semiconductor industry.

(Updates with response from Chinese Ministry of Foreign Affairs in sixth paragraph.)

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