US hits China with sweeping tech export controls

The US has introduced sweeping export controls that will severely complicate efforts by Chinese companies to develop cutting-edge technologies with military applications, in one of the toughest actions President Joe Biden has taken against China.

The commerce department on Friday unveiled restrictions that will make it very hard for Chinese companies to obtain or manufacture advanced computer chips and will slow their progress in artificial intelligence.

The measures are also designed to make it much tougher for China to develop supercomputers with military applications that range from modelling nuclear weapons to development of hypersonic weapons.

The controls mark a new attempt to decouple China from the US in cutting-edge technologies. They come days before the Chinese Communist party holds its 20th national congress at which President Xi Jinping is expected to seal a third term as leader.

Paul Triolo, a China and tech expert at Albright Stonebridge, a consultancy, said the action was a “major watershed” in US-China relations and in the increasingly intense technology competition between the two countries.

“The US has essentially declared war on China’s ability to advance the country’s use of high-performance computing for economic and security gains,” said Triolo.

The controls will hit Chinese companies in multiple ways. They will bar US companies from exporting critical chip manufacturing tools to China, which will affect groups such as Semiconductor Manufacturing International Corp, Yangtze Memory Technologies Co and ChangXin Memory. They will also prohibit US citizens and companies from providing any kind of direct or indirect support for semiconductor fabrication plants in China.

The US also put YMTC — along with 30 other Chinese entities — on a list of “unverified” companies, paving the way for possible inclusion on a separate blacklist called the “entity list” that would effectively bar US companies from supplying them with technology.

“The administration’s strategy is to deny China the capability to indigenise its semiconductor industry. If the US is successful, this causes a huge problem for Beijing’s strategy to be a world-class player,” said Martijn Rasser, a security and technology expert at the Center for a New American Security, a think-tank.

Underscoring the scope of the controls, the US is using a far-reaching mechanism called the “foreign direct product rule” to make it harder for China to develop and maintain supercomputers and AI technology.

The rule — which was first used by the Trump administration against Chinese technology group Huawei — in effect bars any US or non-US company from supplying targeted Chinese entities with hardware or software that contains, or has been manufactured with, American technology.

But in an effort to reduce supply chain disruptions, the administration will carve out an exception for chipmaking facilities in China owned by companies from the US or allied countries that are exporting chips.

“The PRC [People’s Republic of China] 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 modernisation,” said Thea Kendler, a senior commerce department official. “Our actions will protect US national security.”

Analysts said China’s memory chipmakers, including YMTC and ChangXin Memory, would feel the most immediate blow.

“They are basically doomed,” said Mark Li, a semiconductor analyst at Bernstein in Hong Kong. “It will be very difficult for them to get the equipment they need.

But the ban on the export of semiconductor tools could significantly hurt Chinese chipmakers more broadly because US equipment makers have a stranglehold in a few key niches.

Triolo said there would be “many losers”, including US chip design leaders such as Nvidia and AMD, and tool makers including Applied Materials and Lam Research. He said the rules would also hit non-US players, including ASML, the Dutch company that produces the most advanced semiconductor tools, and TSMC, the Taiwanese contract foundry company.

One chip industry executive said the US was attacking China “from all angles”.

“The stunning thing about this move is that they have assembled a whole array of tools,” the executive said. “They are not just targeting military applications, they are trying to block the development of China’s technology power by any means.”