The US has introduced sweeping export controls that will severely complicate efforts by Chinese companies to develop cutting-edge technologies with military applications, in one of the toughest actions President Joe Biden has taken against China.
The commerce department on Friday announced restrictions that will make it extremely hard for Chinese companies to obtain or manufacture advanced computer chips and will slow their progress in artificial intelligence.
The measures are also designed to make it much tougher for China to develop supercomputers with military applications that range from modelling nuclear weapons to developing hypersonic weapons.
The controls mark a new attempt to decouple China from the US in cutting-edge technologies. They come days before the Chinese Communist party holds its 20th national congress at which President Xi Jinping is expected to seal a third term as leader.
Paul Triolo, a China and tech expert at Albright Stonebridge, a consultancy, said the action was a “major watershed” in US-China relations and in the increasingly intense technology competition between the two countries.
“The US has essentially declared war on China’s ability to advance the country’s use of high-performance computing for economic and security gains,” said Triolo.
The controls will hit Chinese companies in multiple ways. They will bar US companies from exporting critical chip manufacturing tools to China, which will affect groups such as Semiconductor Manufacturing International Corp, Yangtze Memory Technologies Co and ChangXin Memory.
The restrictions will also prohibit “US persons” — American citizens and companies — from providing direct or indirect support to Chinese companies involved in advanced chip manufacturing.
Kevin Wolf, an expert on export controls at Akin Gump, said the US persons provision was the “most significant and expansive” element of the broad package of measures announced. He said it was a “novel” approach because it threatened a form of sanctions even if the underlying technology was not subject to existing export controls.
The US also put YMTC — along with 30 other Chinese entities — on a list of “unverified” companies, paving the way for possible inclusion on a separate blacklist called the “entity list” that would effectively bar US companies from supplying them with technology.
“The administration’s strategy is to deny China the capability to indigenise its semiconductor industry. If the US is successful, this causes a huge problem for Beijing’s strategy to be a world-class player,” said Martijn Rasser, a security and technology expert at the Center for a New American Security, a think-tank.
Underscoring the scope of the controls, the US is using a far-reaching mechanism called the “foreign direct product rule” to make it harder for China to develop and maintain supercomputers and AI technology.
The rule — which was first used by the administration of Donald Trump against Chinese technology group Huawei — in effect bars any US or non-US company from supplying targeted Chinese entities with hardware or software whose supply chain contains American technology.
But in an effort to reduce supply chain disruptions, the administration will carve out an exception for chipmaking facilities in China owned by companies from the US or allied countries that are exporting chips.
“The PRC [People’s Republic of China] has poured resources into developing supercomputing capabilities and seeks to become a world leader in artificial intelligence by 2030. It is using these capabilities to monitor, track and surveil their own citizens, and fuel its military modernisation,” said Thea Kendler, a senior commerce department official. “Our actions will protect US national security.”
Analysts said China’s memory chipmakers, including YMTC and ChangXin Memory, would feel the most immediate blow.
“They are basically doomed,” said Mark Li, a semiconductor analyst at Bernstein in Hong Kong. “It will be very difficult for them to get the equipment they need.
But the ban on the export of semiconductor tools could significantly hurt Chinese chipmakers more broadly because US equipment makers have a stranglehold in a few crucial niches.
Triolo said there would be “many losers”, including US chip design leaders such as Nvidia and AMD, and tool makers including Applied Materials and Lam Research. He said the rules would also hit non-US players, including ASML, the Dutch company that produces the most advanced semiconductor tools, and TSMC, the Taiwanese contract foundry company.
One chip industry executive said the US was attacking China “from all angles”.
“The stunning thing about this move is that they have assembled a whole array of tools,” the executive said. “They are not just targeting military applications, they are trying to block the development of China’s technology power by any means.”
The Semiconductor Industry Association, the main US lobby group for the chip industry, said it was “assessing” the effect of the controls and working with its members to ensure compliance.
“We understand the goal of ensuring national security and urge the US government to implement the rules in a targeted way — and in collaboration with international partners — to help level the playing field and mitigate unintended harm to US innovation,” the group said.
Chuck Schumer, the Senate Democratic majority leader, welcomed the controls but said the US need to go further. He said the Senate was looking at ways to include measures in an upcoming defence spending bill to counter Chinese efforts to undermine the US chip industry.
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Source: Economy - ft.com
