China Says Biden’s New Chip Technology Curbs Will Harm Recovery

(Bloomberg) — China has criticized expanding U.S. restrictions on its access to semiconductor technology, saying they will hurt supply chains and the global economy.

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

The measures are intended to halt China’s drive to develop its own chip industry and advance its military capabilities. They include export restrictions on 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 invested resources in developing supercomputing capabilities and seeks to become a world leader in artificial intelligence by 2030,” said Assistant Secretary of Commerce for the Export Administration, Thea D. Rozman Kendler. “It uses these capabilities to monitor, track and monitor its own citizens and fuel its military modernization.”

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

The United States is seeking to ensure that Chinese companies do not transfer technology to the country’s military and that chipmakers in China do not develop the capacity to manufacture advanced semiconductors themselves.

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

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

Chipmaker stocks have struggled throughout 2022, after three straight years the group has climbed between 40% and 60%. The Philadelphia Stock Exchange’s semiconductor index is down nearly 40% so far this year, on track for its biggest annual decline since 2008, and recently fell to its lowest level. since November 2020.

Widespread losses

Losses have been widespread, with nearly every component of the industry benchmark in negative territory this year. Nvidia Corp. and Advanced Micro Devices Inc. fell nearly 60%. AMD on Thursday reported weaker-than-expected preliminary third-quarter revenue. AMD and Nvidia have already revealed that China-related restrictions on AI chips will hurt their sales.

Nvidia said Friday that the broader regulations will not “materially impact our business,” which is already constrained by previous export controls.

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

The trade also imposed a series of restrictions on the supply of American machines capable of manufacturing advanced semiconductors. It tackles the kinds of memory chips and logic components that are at the heart of cutting-edge 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’re making things there for immediate export elsewhere – Commerce has said it would 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 vital 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 overseas cooperation is necessary to avoid hampering initiatives and said talks are underway with other parties around the world on the matter.

The restrictions on chip manufacturing equipment cover the production of the following:

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

  • 18 nanometer dynamic random access memory chips.

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

For companies with factories in China, including non-US companies, 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 sends components around the world.

“The new measures restrict the sale of equipment for memory products of a certain technology level or higher, but allow Korean chipmakers to export if they have a license from the Department of Commerce,” the statement said. company in a press release. “SK Hynix is ​​ready to do everything possible to obtain the license from the US government and will work closely with the Korean government for this.”

Separately, Commerce added other 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. This indicates that US vendors will face new hurdles in selling technology to these entities.

The biggest name to add to the list is Yangtze Memory Technologies Co. The memory chip maker is widely seen as the best bet China has to break into the top ranks of the industry and has been making strides with advanced products for chips. based storage.

The U.S. chip industry has expressed concern that overly aggressive action could disadvantage domestic companies. They worry that the loss of sales in China will hurt their ability to spend on innovation and potentially help their competitors overseas.

The Semiconductor Industry Association, which represents all of the largest U.S. chipmakers, said it was evaluating the impact of new export controls and would ensure compliance.

A bill signed by Biden in August promises to inject about $52 billion into the US semiconductor industry.

(Updates with Chinese Foreign Ministry response to sixth paragraph.)

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