The US aims to hinder China’s chip industry with sweeping new export rules

Oct 7 (Reuters) – The Biden administration on Friday published a sweeping set of export controls, including a measure to cut off China from certain semiconductor chips made anywhere in the world with U.S. equipment, significantly expanding its reach in its effort to slow Beijing’s technological and military advances.

The rules, some of which take effect immediately, build on restrictions sent in letters earlier this year to top toolmakers KLA Corp ( KLAC.O ), Lam Research Corp ( LRCX.O ) and Applied Materials Inc ( AMAT.O ). demands that they stop shipments of equipment to wholly owned Chinese factories that manufacture advanced logic chips.

The amount of measures may constitute the biggest shift in US policy towards shipping technology to China since the 1990s. If effective, they could hamper China’s chip manufacturing industry by forcing US and foreign companies that use US technology to cut support for some of China’s leading factories and chip designers.

“This will set the Chinese back many years,” said Jim Lewis, a technology and cyber security expert at the Center for Strategic and International Studies (CSIS), a Washington DC-based think tank, who said the policy harks back to the tough regulations on the height of the Cold War.

“China is not going to give up chipmaking … but this will really slow them (down).”

In a briefing with reporters on Thursday previewing the rules, senior 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 admitted, however, that they had not secured any promises that Allied nations would implement similar measures, and that discussions with those nations were ongoing.

“We recognize that the unilateral controls we are putting in place will lose effectiveness over time if other countries do not join us,” an official said. “And we risk damaging American technology leadership if foreign competitors are not subject to similar controls.”

The extension of US powers to control exports to China of chips made with US tools is based on an extension of the so-called foreign direct product rule. It was previously extended to give the U.S. government authority to control the export of chips made overseas to Chinese telecoms giant Huawei Technologies Co Ltd ( HWT.UL ) and later to stop the flow of semiconductors to Russia after its invasion of Ukraine.

On Friday, the Biden administration applied the expanded restrictions on China’s IFLYTEK, Dahua Technology and Megvii Technology, companies added to the entity list in 2019 over allegations they helped Beijing suppress its Uyghur minority group.

The rules published on Friday also block shipments of a wide range of chips for use in Chinese supercomputer systems. The rules define a supercomputer as any system with more than 100 petaflops of computing power within a floor area of ​​6,400 square feet, a definition that two industry sources said could also apply to 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 limit China’s advances rather than simply trying to level the playing field.

“The scope of the rule and potential impacts are quite impressive, but of course the devil will be in the details of implementation,” he added.

The Semiconductor Industry Association, which represents chipmakers, said it is studying the rules and urged the United States to “implement the rules in a targeted manner — and in cooperation with international partners — to help level the playing field.”

Earlier on Friday, the United States added China’s top memory chip maker YMTC and 30 other Chinese entities to a list of companies that U.S. officials cannot inspect, raising tensions with Beijing and targeting a firm that has long troubled the Biden administration. read more

The “unverified list” is a potential precursor to tougher financial blacklists, but companies that comply with US inspection rules can get off the list. On Friday, U.S. officials removed nine such firms, including a unit of China’s Wuxi Biologics, which makes ingredients for AstraZeneca Plc’s ( AZN.L ) COVID-19 vaccine.

The new regulations would also severely limit exports of U.S. equipment to Chinese memory chip makers and formalize letters sent to Nvidia Corp ( NVDA.O ) and Advanced Micro Devices Inc ( AMD ) ( AMD.O ) restricting shipments to China of chips used in supercomputing systems which nations around the world depend on to develop nuclear weapons and other military technologies.

Reuters was the first to report key details of the new restrictions on memory chip makers, including a deadline for foreign companies operating in China and moves to extend restrictions on shipments to China of technologies from KLA, Lam, Applied Materials, Nvidia and AMD. read more read more

Reporting by Stephen Nellis in San Francisco and Karen Freifeld in New York Additional reporting by David Shepardson in Washington Editing by Alexandra Alper, Chris Sanders, Matthew Lewis and Richard Chang

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