Latest US action against China’s semiconductor industry targets equipment manufacturers

The United States is set to initiate its third enforcement action in three years against China‘s semiconductor sector on Monday, imposing export restrictions on 140 companies, including chip equipment manufacturer Naura Technology Group, as reported by two sources familiar with the situation.

This initiative aims to undermine Beijing’s ambitions in chip manufacturing and will also affect Chinese chip tool producers Piotech and SiCarrier Technology through new export limitations. The restrictions will target shipments of advanced memory chips and additional chipmaking tools to China.

This action represents one of the Biden Administration’s significant efforts to limit China’s capacity to access and produce chips that could enhance artificial intelligence for military purposes or pose a threat to U.S. national security.

The timing coincides with the impending inauguration of former Republican President Donald Trump, who is anticipated to maintain many of Biden’s stringent policies towards China.

The package encompasses restrictions on shipments of high bandwidth memory (HBM) chips, essential for advanced applications such as AI training, along with new limitations on 24 additional chipmaking tools and three software tools. It also includes export restrictions on chipmaking equipment produced in countries like Singapore and Malaysia. These controls are likely to impact companies such as Lam Research, KLA, and Applied Materials, as well as non-U.S. firms like Dutch equipment manufacturer ASM International.

Among the Chinese entities facing these new restrictions are nearly two dozen semiconductor firms, two investment companies, and over 100 chipmaking tool manufacturers, according to the sources.

U.S. lawmakers have indicated that some of these companies, including Swaysure Technology Co, Qingdao SiEn, and Shenzhen Pensun Technology Co, collaborate with Huawei Technologies, the telecommunications giant previously affected by U.S. sanctions and now central to China’s advanced chip production and development efforts.

They will be included on the entity list, which prohibits U.S. suppliers from sending shipments to them without obtaining a special license in advance.

In recent years, China has intensified its efforts to achieve self-sufficiency in the semiconductor industry, particularly as the U.S. and other nations have imposed restrictions on the export of advanced chips and the manufacturing equipment necessary for their production. Nevertheless, China still lags significantly behind industry leaders such as Nvidia in AI chip technology and ASML in the Netherlands, which specializes in chip-making equipment.

Additionally, the U.S. is preparing to impose further restrictions on Semiconductor Manufacturing International, the largest contract chip manufacturer in China. This company was added to the Entity List in 2020, but previously, a policy allowed for the approval of billions of dollars in licenses for shipments to it.

For the first time, the U.S. will also include two companies involved in chip investments on the entity list. Wise Road Capital, a Chinese private equity firm, and Wingtech Technology Co., a technology firm, will be added to this list.

Typically, companies that apply for licenses to ship to entities on the Entity List face a high likelihood of denial.

DUTCH AND JAPANESE EXEMPTED

A component of the new regulatory package concerning the foreign direct product rule may negatively impact some U.S. allies by restricting the shipments their companies can send to China. This updated rule will enhance U.S. authority to limit exports of chip manufacturing equipment produced by U.S., Japanese, and Dutch firms in other regions to specific chip facilities in China.

Equipment manufactured in Malaysia, Singapore, Israel, Taiwan, and South Korea will fall under this rule, while the Netherlands and Japan will remain exempt. The broadened foreign direct product rule will target 16 companies on the entity list that are deemed crucial to China’s advanced chipmaking goals.

Additionally, the rule will reduce the threshold for U.S. content to zero, determining when certain foreign products are subject to U.S. oversight. This change will enable the U.S. to control any item sent to China from abroad if it includes any U.S. chips.

The new regulations are being introduced following extensive negotiations with Japan and the Netherlands, which, alongside the United States, are key players in the production of advanced chip manufacturing equipment.

According to sources, the U.S. intends to exempt nations that establish comparable controls. Additionally, one of the new regulations limits the use of memory in AI chips that align with the specifications of “HBM 2” and above, a technology produced by South Korea’s Samsung and SK Hynix, as well as U.S.-based Micron. Industry insiders anticipate that only Samsung Electronics will be affected.

These latest regulations represent the third significant set of export restrictions on chip technology directed at China under the Biden administration. In October 2022, the U.S. introduced a comprehensive array of controls aimed at restricting the sale and production of specific high-end chips, marking a substantial shift in U.S. technology policy towards China since the 1990s.