China criticized expanded U.S. restrictions on its access to semiconductor technology, saying they’ll harm supply chains and the world economy.
President Joe Biden administration announced the export curbs on Friday, escalating tensions between the two countries and adding complications for an industry faced with slumping demand.
The measures seek to stop China’s drive to develop its own chip industry and advance its military capabilities. They include restrictions on the export of some 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 poured resources into developing supercomputing capabilities and seeks to become a world leader in artificial intelligence by 2030,” said Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler. “It is using these capabilities to monitor, track and surveil their own citizens, and fuel its military modernization.”
Chinese Foreign Ministry spokesperson Mao Ning said Saturday that the measures, which begin to enter into force this month, are unfair and will “also hurt the interests of U.S. companies,” according to an official briefing transcript. They “deal a blow to global industrial and supply chains and world economic recovery,” she said.
The U.S. is seeking to ensure that Chinese companies don’t transfer technology to the country’s military and that chipmakers in China don’t develop the capability to make advanced semiconductors themselves.
The rules come at a difficult time for the chip industry, which is suffering a steep drop in demand for personal-computer and smartphone components. Shares of many of the world’s biggest semiconductor makers tumbled on Friday following reports that the slump may be even worse than thought.
The government’s actions add another layer of uncertainty for investors already trying to work out how much demand for semiconductors might shrink. Companies such as Applied Materials Inc. and Intel Corp. can’t easily walk away from China, the biggest single market for their products and a key part of a global supply chain for electronics used everywhere in the world.
Chipmaker stocks have struggled throughout 2022, following three straight years where 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
The losses have been widespread, with nearly every component of the industry benchmark index in negative territory this year. Nvidia Corp. and Advanced Micro Devices Inc. have declined almost 60%. AMD reported preliminary third-quarter revenue on Thursday that was weaker than expected. AMD and Nvidia have already disclosed that the China-related restrictions on AI chips will hurt their sales.
Nvidia said Friday that the broader regulations won’t have “a material impact on our business,” which is already restricted by previous export controls.
When the new rules come into force, it will be harder for providers of chips used in Chinese supercomputers and related gear to get permission to fill orders. They should presume requests will be denied, according to senior Commerce Department officials.
Commerce also put a raft of restrictions on supplying U.S. machinery that’s capable of making advanced semiconductors. It’s going after the types of memory chips and logic components that are at the heart of state-of-the art designs.
While there will be more latitude for overseas companies needing technology for their own operations in China — or for parties that can prove they’re making things there for immediate export elsewhere — Commerce said it will enforce the rules and also cut off support for existing deployments of machinery covered by the restrictions.
While the U.S. is home to the biggest block of companies that design vital electronic components and provide 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 the initiatives and said there are talks with other parties underway around the world on the topic.
Chipmaking gear restrictions cover production of the following:
—Logic chips using so-called nonplanar transistors made with 16-nanometer technology or anything more advanced than that. Generally speaking, the smaller the nanometers, 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 plants in China, including non-U.S. firms, the rules will create additional hurdles and require government signoff.
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 sends components around the world.
“The new measures restrict sale of equipment for memory products of certain level of technology or above, but allow Korean chipmakers to export if they have a license from the Commerce Department,” the company said in a statement. “SK Hynix is ready to make its utmost efforts to get the U.S. government’s license and will closely work with the Korean government for this.”
Separately, Commerce added more names to a list of companies that it regards as “unverified,” meaning it doesn’t know where their products end up being used. The 31 additions are all Chinese. That indicates that U.S. suppliers will face new hurdles in selling technologies to those entities.
The biggest name to be added to the list is Yangtze Memory Technologies Co. The memory-chip maker is widely regarded as being the best bet China has of breaking through into the front 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 China sales will hurt their ability to spend on innovation and potentially help competitors abroad.
The Semiconductor Industry Association, which represents all of the largest U.S. chipmakers, said it’s evaluating the impact of the new export controls and will ensure compliance.
A bill signed by Biden in August promises to infuse about $52 billion into the U.S. semiconductor industry.
