US implements sweeping export rules targeting Chinese chip industry

A sweeping set of export controls was announced by the Biden administration on Friday including measures aimed to cut China off from semiconductor chips made with US equipment regardless of manufacturing country, expanding its reach in its bid to slow China’s technological and military advances.

The rules, some of which kicked in immediately, build on restrictions communicated earlier this year to top toolmakers KLA Corp, Lam Research Corp and Applied Materials Inc, effectively requiring them to halt shipments of equipment to wholly Chinese-owned factories producing advanced logic chips.

These measures could amount to the biggest shift in US policy toward shipping technology to China since the 1990s. If effective, they could hobble China's chip manufacturing industry by forcing American and foreign companies that use US technology to cut off support for some leading factories and designers in China.

According to US experts, the new policy would potentially set the Chinese back years. Senior government officials meanwhile explained that many of the measures were aimed at preventing foreign firms from selling advanced chips to China or supplying Chinese firms with tools to make their own advanced chips.

No promises were secured from allied nations, however, that they would implement similar measures, discussions between those nations and the US are still ongoing. As the Biden administration recognizes that unilateral controls that’s being implemented will lose effectiveness over time without the support of other countries.

The expansion of US powers to control exports to China of chips made with US tools is based on a broadening of the so-called foreign direct product rule previously expanded to give the US authority to control exports of chips made overseas to Huawei and later to stop the flow of semiconductors to Russia after its invasion of Ukraine.

The rules published on Friday also block shipments of a broad array of chips for use in Chinese supercomputing systems, defining a supercomputer as any system with more than 100 petaflops of computing power within a floor space of 6,400 square feet. Industry sources said that the definition could also hit some commercial data centers at Chinese tech giants.

Companies around the world began to wrestle with the latest US action, with shares of semiconductor manufacturing equipment makers falling. US suppliers now have to seek difficult-to-obtain licenses from the US government before shipping China even the most low-tech items.

Earlier on Friday, the United States added China's top memory chipmaker YMTC and 30 other Chinese entities to a list of companies that US officials cannot inspect, ratcheting up tensions with Beijing and starting a 60 day-clock that could trigger much tougher penalties.

Under a new policy announced alongside the sweeping measure, if a government prevents US officials from conducting site checks at companies placed on the unverified list, US authorities will start the process for adding them to the entity list after 60 days.

South Korea's industry ministry said in a statement on Saturday that there will be no significant disruption to equipment supply for Samsung and SK Hynix's existing chip production in China, although it was necessary to minimise uncertainty through consultation with US export control authorities.