Unlock Editor’s Digest for free
Rula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
The US has imposed new export controls to limit China’s ability to build an advanced semiconductor industry and slow the development of artificial intelligence with military applications.
Restrictions on exports of key manufacturing tools will affect both American companies and foreign firms that use American technology in their chip-making equipment.
The US will also prevent the export of advanced high-bandwidth memory (HBM), a critical component of artificial intelligence chipsto China.
US Commerce Secretary Gina Raimondo said the new controls, which follow two previous broad packages passed in October 2022 and 2023, were “innovative and far-reaching”.
“They are the strongest control the US has ever put in place to impair the ability of the People’s Republic of China to produce the most advanced chips they use in their military modernization,” she said.
The Commerce Department will also add 140 Chinese groups to the “entity list,” a blacklist that requires U.S. and other companies to apply for export licenses that are expected to be nearly impossible to obtain.
Among the targets are chipmakers such as Semiconductor Manufacturing International Corporation and Huawei — except for Chinese companies that make chip-making equipment.
Megan Harris, an export control expert at consultancy Beacon Global Strategies, said that ChinaThe chip manufacturing equipment industry will be targeted as an area that has been undervalued by the Biden administration.
“Trying to hinder China’s advanced semiconductor industry without addressing their acceleration of domestic instrumental capabilities is like trying to prevent a fisherman from catching big fish by simply denying him big fishing rods. He will get there eventually,” Harris said.
The rules restrict the export of 24 types of chip-making tools that were not previously targeted. To make them more effective, the US will in many cases apply an extraterritorial measure called the “Foreign Direct Product Rule” (FDPR), which will affect non-US companies that have US parts in their tools, of which the vast majority are.
One person familiar with the rules said the U.S. carved out an FDPR exemption for Japan and some European allies, including the Netherlands, after they agreed to apply their own export restrictions. South Korea has not yet secured an exemption, but may later.
One US official said the FDPR would make it more difficult for US groups to circumvent existing controls by making tools in other countries – such as Singapore and Malaysia – for export to China.
In the recent the reportGregory Allen, an artificial intelligence expert at CSIS, said the major US toolmakers — Applied Materials, KLA and Lam Research — have “doubled down” on expanding their production outside the US.
Some critics have privately wondered why the administration did not include Huawei’s other chip manufacturing facilities on the list. When asked how many manufacturing plants there are that are not on the list, a second US official said only that the controls were focused on the production of advanced chips.
People familiar with the situation say there is an intense debate within the administration about how to deal with Huawei. One person said some of Huawei’s factories are still down, so it’s unclear if they will be destined for advanced chips. But some officials have pushed for tighter controls on the Shenzhen-based company.
In addition to compromises reached between various agencies, the US has decided to take a less aggressive approach in some areas to get cooperation on chip-related restrictions from its allies.
Questions have also been raised about why the administration did not add CXMT, the Chinese manufacturer of HBM, to the list of entities. Some inside the administration pushed for it, but one person said other restrictions would have some impact on its ability to produce HBM.
Allen said there was a “strange contradiction” behind the new controls. He said, for example, the administration is greatly expanding the scope of the FDPR to cover almost all chip-making tools worldwide, but on the other hand, the controls will only apply to some Huawei and SMIC front companies, but not others.
“What’s the point of blocking sales of HBM and AI chips to China while continuing to allow sales of CXMT hardware, which is one of the most likely manufacturers of HBM in China?” – he said.
