The US hits China with sweeping technology export controls

The US has imposed sweeping export controls that will greatly complicate efforts by Chinese companies to develop cutting-edge technologies with military applications, in one of the toughest measures President Joe Biden has taken against China.

The trade department on Friday announced restrictions that will make it extremely difficult for Chinese companies to obtain or manufacture advanced computer chips and will slow their progress in artificial intelligence.

The measures are also said to make it significantly more difficult for China to develop supercomputers with military applications ranging from modeling nuclear weapons to developing hypersonic weapons.

The controls mark a new attempt to decouple China from the US in cutting-edge technology. They come days before the Chinese Communist Party holds its 20th National Congress, where President Xi Jinping is expected to seal a third term as leader.

Paul Triolo, a China and technology expert at Albright Stonebridge, a consulting firm, said the action marks a “major turning point” in US-China relations and in the increasingly intense technology competition between the two countries.

“The US has basically declared war on China’s ability to advance the country’s use of high-performance computing for economic and security benefits,” Triolo said.

The controls will hit Chinese companies in a variety of ways. They will prevent US companies from exporting critical chip-making tools to China, affecting conglomerates like Semiconductor Manufacturing International Corp, Yangtze Memory Technologies Co and ChangXin Memory.

The restrictions will also ban “US persons” — American citizens and companies — from directly or indirectly supporting Chinese companies involved in manufacturing advanced chips.

Kevin Wolf, export controls expert at Akin Gump, said the US identification was the “most significant and comprehensive” element of the announced comprehensive package of measures. He said it was a “novel” approach because it threatened some form of sanctions even if the underlying technology was not subject to existing export controls.

The US also placed YMTC – along with 30 other Chinese companies – on a list of “unverified” companies, paving the way for possible inclusion on a separate blacklist called the “company list” that would effectively prevent US companies from to provide them with technology.

“The government’s strategy is to deny China the ability to indigenize its semiconductor industry. If the US succeeds, it will pose a major problem for Beijing’s strategy to be a world-class player,” said Martijn Rasser, security and technology expert at the Center for a New American Security, a think tank.

The US underscores the scope of controls by using a sweeping mechanism called the “Foreign Direct Product Rule” to make it more difficult for China to develop and maintain supercomputers and AI technology.

The rule – first used by Donald Trump’s administration against Chinese tech giant Huawei – bans virtually any US or non-US company from specifically supplying hardware or software to Chinese companies whose supply chain contains American technology.

However, to reduce supply chain disruptions, the government will introduce an exemption for chip manufacturing facilities in China owned by U.S. or allied companies that export chips.

“The PRC [People’s Republic of China] has dedicated resources to developing supercomputing capabilities and aims to become a global leader in artificial intelligence by 2030. It uses these capabilities to monitor, track and monitor its own citizens and advance its military modernization,” said Thea Kendler, a senior trade department official. “Our actions will protect U.S. national security.”

Analysts said China’s memory chip makers, including YMTC and ChangXin Memory, would feel the most immediate hit.

“They’re 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 semiconductor tool exports could hurt Chinese chipmakers more broadly as US equipment makers have a stranglehold on some crucial niches.

Triolo said there will be “many losers,” including top US chip designers like Nvidia and AMD, and toolmakers like Applied Materials and Lam Research. He said the rules would also affect players outside the US, including ASML, the Dutch company that makes the most advanced semiconductor tools, and TSMC, the Taiwanese contract foundry company.

A chip industry executive said the US would attack China “from all sides.”

“The amazing thing about this move is that they put together a whole set of tools,” said the executive. “They are not only targeting military applications, they are trying by all means to block the development of China’s technological power.”

The Semiconductor Industry Association, the main US lobbying group for the chip industry, said it is “evaluating” the impact of the controls and is working with its members to ensure compliance.

“We understand the goal of ensuring national security and call on the U.S. government to implement the rules in a targeted manner – and in collaboration with international partners – to level the playing field and mitigate unintended harm to U.S. innovation,” said the group.

Chuck Schumer, the Senate Majority Leader, welcomed the controls but said the US must go further. He said the Senate is looking at ways to include measures in an upcoming defense spending bill to counter Chinese efforts to undermine the US chip industry.

consequences Demetri Sevastopulo on twitter The US hits China with sweeping technology export controls

Adam Bradshaw

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