In October, the US introduced sweeping chip export controls in an effort to slow China’s progress in artificial intelligence and supercomputers and make it harder for the country to manufacture advanced semiconductors.
The controls are arguably the toughest measures President Joe Biden has taken against China and his first serious attempt to slow its military modernization by targeting the technologies behind everything from nuclear weapons modeling to hypersonic weapons development.
“When Huawei was targeted, it was peacetime trade tensions. We are now in a state close to war,” said Hideki Wakabayashi, a professor at Tokyo University of Science, referring to the Chinese telecommunications equipment group.
How will they affect China’s semiconductor industry?
China’s biggest chipmaker, Semiconductor Manufacturing International Corporation, which makes logic chips that power computers, will be hit by the restrictions as they prevent US companies from providing technology for chips more advanced than 14 nanometers or, in some cases, 16 nm. . The rules will make it more difficult for SMIC to continue production at the 14nm level because they will affect areas such as equipment maintenance and replacement.
Memory chip makers such as Yangtze Memory Technologies Corp and ChangXin Memory Technologies will also be affected. Its most advanced products already meet the limits the US has set for memory chips. In the case of YMTC, for example, the US has imposed restrictions on the export of technology to manufacture Nand memory chips with 128 layers or more – the level of the Chinese company’s most advanced chips.
Without access to US technology, China will struggle to maintain its rapid expansion into artificial intelligence and supercomputing – two important areas for the Chinese military – as well as cloud computing.
Douglas Fuller, an expert on the Chinese semiconductor industry, said the entire goal of US policy was to “destroy” Chinese artificial intelligence and high-performance computing that have military applications.
But Tudor Brown, former independent director of SMIC, said the controls could also backfire in the long run because they could “turbine” the Chinese chip industry. “The US is being naive if it thinks this will hold them back for any length of time. I think it will delay them by two to five years, not 10.”
Which US companies will be hit?
Analysts said the impact depends on how aggressively the US enforces controls. Many US companies that produce chips or chip-making tools list China as their biggest market. China accounts for 33% of Applied Materials’ sales, 27% for Intel and 31% for Lam Research.
Applied Materials said the restrictions would cut about $400 million, or 6%, from next quarter’s sales. Nvidia, which will not be able to export its advanced GPUs (graphics processing units) used in machine learning systems to China, also put the quarterly revenue impact at $400 million, or 7% of its sales.
Lam Research, a major supplier to China’s YMTC, said export controls would cut as much as $2.5 billion, or as much as 15%, from 2023 sales.
But some US companies can benefit, such as Micron, a maker of memory chips, which faces increasing competition from YMTC.
Will China retaliate?
Experts say Beijing has limited ability to retaliate. As a Chinese chip industry source put it, Beijing “doesn’t have many levers to respond” in kind.
Last year, China passed a law allowing countermeasures against sanctions. But it has not yet been used in response to Washington’s increasingly tight semiconductor controls or to retaliate against other US moves.
Some experts speculated that China could cut tech giants, including Microsoft and Apple, from its massive consumer market. But an executive at a Chinese chip company said that was unlikely. “China wants to reach a truce in the technological war, rather than a confrontation,” said one expert.
Will there be repercussions for other industries?
On October 7, the US also added 31 Chinese companies, including YMTC, to the “unverified list” of entities for which Washington has failed to conduct end-user checks to verify that US technology is being used for legitimate purposes.
If these concerns are not resolved within 60 days of a company being added to the list, they will almost certainly be placed on the “entity list”, which would effectively prohibit US companies from providing technology. In the case of YMTC, this would hit the company’s less advanced memory chips, as the restrictions would be broader.
European officials believe the US is likely to expand its range of forceful measures, which would create knock-on effects for EU business.
Some analysts warn that most Chinese manufacturers could run out of stock, triggering a shortage of chips that would affect other sectors, including aerospace, consumer electronics, medical devices and cloud computing.
“A shortage of chips could cause downside risks, including a general slowdown in vehicle deliveries and or further deterioration in the profitability of Chinese automakers,” said Gui Lingfeng, director of consultancy Kearney.
What were the global consequences?
Taiwan Taiwan Semiconductor Manufacturing Company, the world’s largest chipmaker, said the immediate impact was “limited and manageable”. But chief executive CC Wei warned it was “too early” to assess the long-term impact.
South Korea South Korean chipmakers won a one-year exemption for controls. But they will have to apply for US export licenses after the grace period. Experts said they will struggle to gain US approval to export high-end equipment to their factories in China based on previous US opposition to SK Hynix’s plans to install extreme ultraviolet lithography equipment at its Wuxi plant in eastern China.
Japan Since the US imposed tough export restrictions on Huawei in 2019, Japanese companies like Sony have reduced their ties to Chinese chipmakers. But there is strong division in the Japanese business community over the extent of the consequences. “We need to carefully check where US technology is included in our manufacturing equipment,” said a Japanese executive.
Europe ASML, the Netherlands-based global leader in chipmaking equipment, said the controls would have “limited” impact on its shipment plans next year as its business predominantly caters to more mature chip production technologies in China. , rather than the advanced chip production targeted by Washington’s export. control rules. However, underscoring the far-reaching nature of US restrictions, ASML was one of many companies that told US citizens to stop serving Chinese customers while assessing the impact of export controls.