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Corporations feel negative impact of US ban on chips exports to China

Since the United States Department of Commerce announced an exceptionally broad set of prohibitions on exports to China of semiconductor chips and other high-tech equipment, international companies specialized in this sector are already seeing the negative impact of these measures.

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This new policy limits the ability of international corporations and U.S. nationals to provide Chinese customers with goods and services related to the design, fabrication, and access to advanced semiconductor chips as well as computers and assemblies containing such chips.

The regulations mark a major shift in the Biden administration’s China strategy and present a substantial threat to Chinese high-tech industries, including military technology and artificial intelligence. It also affects many companies with operations in China which serve customers around the world.

The Chinese government sees cutting-edge technologies as a centerpiece of the country’s future. China can already compete with industry leaders across a range of leading-edge technologies, but global semiconductor production is still dominated by a few corporations, none of them Chinese. China is dependent on foreign chips; the country spends more per year importing chips than oil.

The US ban includes export to China of cutting-edge chips, as well as chip design software, chip manufacturing equipment, and US-built components of manufacturing equipment. Not only do the prohibitions cover exports from American firms, but also apply to any company worldwide that uses US semiconductor technology, which would cover the world’s leading chipmakers. The new rules also forbid US citizens, residents, and green-card holders from working in Chinese chip firms.

The new requirements are quite complex and detailed. It is important for companies in this industry to consider whether and to what extent these rules apply to their business.

According to the Department of Commerce’s spokesperson, the rules are intended to “restrict the People’s Republic of China’s (PRC’s) ability to both purchase and manufacture certain high-end chips used in military applications.”

Assistant Secretary of Commerce for Export Administration, Thea D. Rozman Kendler, said that “the PRC 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 modernization.”

“Our actions will protect U.S. national security and foreign policy interests while also sending a clear message that US technological leadership is about values as well as innovation,” Kendler added.

The new requirements contain the following provisions:

  • Requires a license for the sale to China of certain advanced and high-performing chips, typically designed for artificial intelligence (AI) and supercomputing, computers, assemblies, and components containing those chips.

  • Requires a license for the sale of manufacturing equipment and other items used in supercomputers or for semiconductor development or production in China.

  • Expands the scope of foreign-produced items that are restricted for sale to Chinese companies on the Entity List.

  • Explicitly forbids US companies and citizens from working with Chinese entities on advanced semiconductor research, design, or fabrication.

  • Establishes a Temporary General License to permit certain limited manufacturing activities in China related to restricted items that are destined for use outside China and a related model compliance certificate.

All companies engaged in the sale of advanced chips and computers, assemblies and components that contain such chips as well as manufacturing equipment and services related to semiconductor research, design or fabrication should carefully consider the new requirements.

The rules prohibit the sale, to Chinese customers, of advanced chips with both high performance (at least 300 trillion operations per second, or 300 teraops) and fast interconnect speed (generally, at least 600 gigabytes per second). Nvidia’s A100, for comparison, is capable of over 600 teraops and matches the 600 Gb/s interconnect speed. Nvidia’s more-impressive H100 can reach nearly 4,000 trillion operations and 900 Gb/s. Both chips, intended for data centers and AI trainers, cannot be sold to Chinese customers under the new rules.

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Additionally, the rules restrict the sale of fabrication equipment if it will knowingly be used to make certain classes of advanced logic or memory chips. This includes logic chips produced at nodes of 16 nanometers or less (Intel, Samsung, and TSMC have done since the early 2010s); NAND long-term memory integrated circuits with at least 128 layers; or DRAM short-term memory integrated circuits produced at 18 nanometers or less (which Samsung began making in 2016).

To avoid a potential bypass, the controls also apply to non-US firms that rely on US-made equipment or software. For instance, Taiwanese or South Korean chipmakers can’t sell Chinese customers advanced chips that are fabricated with US-made technology.

It is possible to apply to the U.S. government for an exemption from at least some of the restrictions. The Taiwanese firm TSMC and South Korean chipmaker SK Hynix have already acquired exemptions for a year. The Commerce Department has stated that such licenses will be the exception, not the rule.

Among other things, the rules impose new license requirements for items destined for a supercomputer or semiconductor development or production end use in China and restricts the ability of US persons to support the development or production of integrated circuits at certain China-located semiconductor fabrication facilities.

For international corporations, the US-China dispute is a reminder of how tense and volatile the chip supply can be. In the European Union, home to less than 10 percent of the world’s microchips market, the debate has bolstered interest in the prospective European Chips Act, a plan to heavily invest in fabrication in Europe.

Experts fear that there could be more such restrictions in the future. Companies and individuals potentially subject to the new requirements should evaluate how these measures affect their operations and, if so, the steps that should be taken to ensure full compliance.


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