Washington's ban on high-tech exports to China marks a major step for economic supremacy for decades to come
The US has taken unprecedented steps to limit sales of advanced computer chips to China, stepping up efforts to contain Beijing's technological and military ambitions. The move is designed to cut off the supply of critical technology to China that can be used across sectors including advanced computing and weapons manufacturing. The crackdown marks the most significant action by Washington against Beijing on technology exports in decades, escalating a trade battle between the world's two most powerful economies.
After export controls, Apple has reportedly postponed plans to use memory chips from China's Yangtze Memory Technologies in its products. The Nikkei newspaper said Apple had planned to use the chip in iPhones sold in China.
What action has the US taken?
On October 7, the Biden administration imposed a series of export controls that included measures to cut China off certain semiconductor chips and chip-making equipment. Under the rules, US companies must stop supplying Chinese chipmakers with equipment that can manufacture relatively sophisticated chips unless they first obtain a license.
The new regulations also add controls on some items of semiconductor production and transactions for certain end-uses of some integrated circuits or chips. The US also wants to increase its export controls to include semiconductor products and software, technology, and other things used to develop and manufacture integrated circuits. In further restrictions, US citizens and green card holders will also be barred from working on certain technologies for Chinese companies and entities.
What products are blocked by sidewalks?
Export restrictions will cover high-end computing chips, such as the NVIDIA A100/H100 and Intel GPUs (Ponte Vecchio), according to Brady Wang, associate director of research for Counterpoint in Hong Kong. The rules, some of which take effect immediately, are based on restrictions sent in a letter earlier this year to leading toolmakers KLA, Lam Research and Applied Materials, requiring them to stop shipping equipment to wholly-owned Chinese factories that manufacture advanced logic chips.
The US commerce department said export controls "limit [China's] ability to acquire advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors".
How significant are the restrictions?
The chip ban was described by seasoned China analyst Bill Bishop as a "massive escalation" in rumbling trade and geopolitical tensions between the US and China. “We are all still trying to understand the impact of the new controls,” he said in his Sinocism newsletter, “and frankly I think many underestimate how important they are, both for technology supply chains and future developments but more broadly for the US. -China Relations”.
International research firm GlobalData said the US announcement "goes beyond the semiconductor industry" and is nothing short of world economic leadership. “It is about the dominance of [artificial intelligence],” said Josep Bori, the company’s director of thematic research, “which underlies what many call the fifth industrial revolution, and, ultimately, about global economic leadership in the decades to come.”
Although they have another year to comply with the restrictions, semiconductor manufacturers in Asia such as market-leading Taiwanese firms TSMC, SK Hynix and Samsung are also threatened by them. S&P Global Ratings credit analyst Clifford Kurz said: “Many of the Asia-Pacific technology issuers we assess have the financial strength to absorb the blow over the next 12 months at least. But in the longer term, the rating implications are clearly negative.”
Can China use locally made chips?
China consumes more than three-quarters of the semiconductors sold globally, but only produces about 15% of global output.
The chip ban was described by seasoned China analyst Bill Bishop as a "massive escalation" in rumbling trade and geopolitical tensions between the US and China. “We are all still trying to understand the impact of the new controls,” he said in his Sinocism newsletter, “and frankly I think many underestimate how important they are, both for technology supply chains and future developments but more broadly for the US. -China Relations”.
International research firm GlobalData said the US announcement "goes beyond the semiconductor industry" and is nothing short of world economic leadership. “It is about the dominance of [artificial intelligence],” said Josep Bori, the company’s director of thematic research, “which underlies what many call the fifth industrial revolution, and, ultimately, about global economic leadership in the decades to come.”
Although they have another year to comply with the restrictions, semiconductor manufacturers in Asia such as market-leading Taiwanese firms TSMC, SK Hynix and Samsung are also threatened by them. S&P Global Ratings credit analyst Clifford Kurz said: “Many of the Asia-Pacific technology issuers we assess have the financial strength to absorb the blow over the next 12 months at least. But in the longer term, the rating implications are clearly negative.”
Can China use locally made chips?
China consumes more than three-quarters of the semiconductors sold globally, but only produces about 15% of global output.
Experts say Chinese equipment makers themselves lag four to five years behind their overseas counterparts, making them unsuitable as instant replacements for missing equipment from US suppliers such as KLA Corp, Applied Materials and Lam Research.
The Boston Consulting Group estimates by 2021 that a country will need at least $1 trillion in additional initial investment to build a fully “self-sufficient” local chip supply chain.
The new restrictions could spur Chinese chipmakers to try to produce advanced chips using creative engineering solutions with old technology that are not subject to sanctions.
Brady Wang of Counterpoint said: "The latest US restrictions will greatly slow down China's advanced semiconductor industry and its derivative technologies, including AI, supercomputers, self-driving training, etc." China may be forced to concentrate its manufacturing capacity on “mature technologies and leverage services outside of China”.
How will China react?
The China Semiconductor Industry Association said in a statement that it hoped the US government would reverse its decision and return to the international trade negotiation process.
The importance of self-sufficiency in technology, which has been a priority for Xi in the past decade, emerged as a theme at this year's congress with Xi Jinping emphasizing hostility from foreign rivals. However, experts say that Beijing may have some means of forcing Washington back to the negotiating table. The ongoing congress means reaction from Beijing has been muted but Bill Bishop said China's options are limited beyond restricting US access to important rare earth metals controlled by China. “Their options are limited because many seemingly obvious actions, such as targeting Apple, will also do a lot of damage to the [China] economy. Boeing would make sense, but they've been punished. I wouldn't be surprised to see rare earths armed
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