The Biden administration is tightening the screws on the Chinese chipmakers with an announcement on Friday that he is enforcing more export controls targeting them. The newest measures effectively close China out of manufacturing some key semiconductor chips.
The new rules further restrict toolmakers like KLA Corp, Lam Research Corp and Applied Materials Inc from shipping any equipment Chinese-owned factories that make advanced logic chips, Reuters reported.
In September, the US Commerce Department had slapped new restrictions on chip sales to Chinese companies. As per the department's guidance, US chipmakers must immediately procure a license to supply artificial intelligence chips to Chinese companies. The US says stringent measures are needed to ensure that AI chips are not used by the Chinese for 'military end use'.
The latest move seeks to stop not just American companies from selling key equipment and technology to China but persuade foreign firms to do so.
Will Take China Back by Years
"This will set the Chinese back years .. China isn't going to give up on chipmaking ... but this will really slow them (down)," said Jim Lewis, a technology and cybersecurity expert at the Center for Strategic and International Studies (CSIS), the agency said. The expert added that the newly unveiled policies are similar to tactics used during the Cold War.
Earlier, US officials said the restrictions will stop foreign companies from selling advanced chips to China. "We recognize that the unilateral controls we're putting into place will lose effectiveness over time if other countries don't join us ... And we risk harming U.S. technology leadership if foreign competitors are not subject to similar controls," said a top official.
In another landmark move in July, the US Senate voted to move forward with the CHIPS Act that will provide a $54 billion boost to the country's semiconductor industry. The long-delayed Senate vote fulfilled the chip industry's demand for subsidies that will enable it to compete with China.
Washington's action is expected to cripple China's technological advancement and directly affect its supercomputing prowess. As per the latest rules, US companies cannot ship a broad spectrum of chips that are crucial for Chinese supercomputing systems. The tough new guideline blocks export of US equipment to Chinese memory chip makers.
Chinese Chip Industry Slumping
A report said last month that chip manufacturing in China is slumping even as the US and India are boosting the key industry. The production of integrated circuits (ICs) fell more than 24 percent in August, compared with the same month a year ago, the South China Morning Post reported. The August output was 24.7 billion units.
The decline was the largest to happen in a single month since 1997. It was also the second consecutive monthly decline. In July, the output was 27.2 billion units, which was a drop of nosedived 16.6 percent. The weakening of China's chip making prowess is largely attributed to continuing Covid restrictions in that country as well as weakening demand.
"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 U.S. powers to control exports to China of chips made with U.S. tools is based on a broadening of the so-called foreign direct product rule. It was previously expanded to give the U.S. government authority to control exports of chips made overseas to Chinese telecoms giant Huawei Technologies Co Ltd and later to stop the flow of semiconductors to Russia after its invasion of Ukraine.
On Friday, the Biden administration applied the expanded restrictions to China's IFLYTEK, Dahua Technology, and Megvii Technology, companies added to the entity list in 2019 over allegations they aided Beijing in the suppression of its Uyghur minority group.
The rules published on Friday also block shipments of a broad array of chips for use in Chinese supercomputing systems. The rules define a supercomputer as any system with more than 100 petaflops of computing power within a floor space of 6,400 square feet, a definition that two industry sources said could also hit 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 contain China's advances instead of simply 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 around the world began to wrestle with the latest U.S. action, with shares of semiconductor manufacturing equipment makers falling.
The Semiconductor Industry Association, which represents chipmakers, said it was studying the regulations and urged the United States to "implement the rules in a targeted way - and in collaboration with international partners - to help level the playing field."
Earlier on Friday, the United States added China's top memory chipmaker YMTC and 30 other Chinese entities to a list of companies that U.S. officials cannot inspect, ratcheting up tensions with Beijing and starting a 60 day-clock that could trigger much tougher penalties.
Companies are added to the unverified list when U.S. authorities cannot complete on-site visits to determine if they can be trusted to receive sensitive U.S. technology, forcing U.S. suppliers to take greater care when shipping to them.
Under a new policy announced on Friday, if a government prevents U.S. officials from conducting site checks at companies placed on the unverified list, U.S. authorities will start the process for adding them to the entity list after 60 days.
Entity listing YMTC would escalate already-rising tensions with Beijing and force its U.S. suppliers to seek difficult-to-obtain licenses from the U.S. government before shipping them even the most low-tech items.
The new regulations will also severely restrict export of U.S. equipment to Chinese memory chip makers and formalize letters sent to Nvidia Corp and Advanced Micro Devices Inc (AMD) restricting shipments to China of chips used in supercomputing systems that nations around the world rely on to develop nuclear weapons and other military technologies.
Reuters was first to report key details of the new curbs on memory chip makers, including a reprieve for foreign companies operating in China and the moves to broaden restrictions on shipments to China of technologies from KLA, Lam, Applied Materials, Nvidia and AMD.