The US Has Upgraded Its Restrictions on Chip Equipment Exports to China!

According to two people familiar with the matter, the Biden administration plans to announce a new export control regulation on July 31, aiming to further increase restrictions on chip exports to China. The regulation will affect about 120 Chinese entities, including wafer fabs, equipment manufacturers, electronic design automation (EDA) software providers and related companies.

In order to hinder China’s breakthroughs in supercomputing and artificial intelligence, the United States has implemented export controls on chips and chip manufacturing equipment to China in 2022 and 2023. The newly introduced FDPR will give the United States the power to exercise “long-arm jurisdiction” over foreign products. This means that even if an item is produced outside the United States, as long as any amount of specific U.S. controlled software or technology is directly used in its development or manufacturing process, the item will be included in the jurisdiction of the Export Administration Regulations (EAR).

Previously, this rule of EAR was mainly applied to a small number of companies listed on the “Entity List” by the U.S. Department of Commerce, such as Huawei. Since 2020, the United States has continued to use this rule to restrict Huawei from using overseas wafer foundries to produce its self-developed chips, thereby further increasing its efforts to curb its technological development.

The new rule will be an extension of the Foreign Direct Product Rule, aiming to prohibit China's top chip manufacturing center - about six wafer fabs - from accepting exports from multiple countries. Affected countries and regions include Israel, Taiwan, Singapore and Malaysia. However, it is not yet clear which wafer fabs will be specifically affected.

However, allies that have already participated in the US semiconductor export control action, including Japan, the Netherlands and South Korea, will be excluded from the impact of the new rule (because Japan and the Netherlands have implemented relevant process restrictions last year, and South Korea has previously obtained an indefinite exemption from the United States because Samsung Electronics and SK Hynix have multiple wafer fabs in the mainland), thereby limiting the actual scope of the rule. Therefore, major semiconductor equipment manufacturers such as ASML in the Netherlands and Tokyo Electron in Japan will not be directly affected by the new rule.

In addition to Japan, the Netherlands and South Korea, the rule also exempts more than 30 other countries that belong to the A:5 group. According to sources, a key part of the latest export control plan will lower the threshold for US content in determining when overseas products are subject to US control and is intended to fill loopholes in the Foreign Direct Product Rule. Specifically, this means that some devices may be subject to export control simply because they have chips containing US technology built in.

Although the latest rules are still in the draft stage, the information that has been exposed shows that the US government is seeking to continue to put pressure on China’s booming semiconductor industry without angering its allies.

The United States also plans to include about 120 Chinese entities on its list of restricted trade, covering wafer fabs, tool manufacturers, EDA (electronic design automation) software providers and related companies that will be directly affected by the new rules. Once included in the list, suppliers of these entities will have to obtain licenses before shipping to them, and the US government may refuse to issue these licenses.

In addition, the United States is considering a series of unilateral measures to restrict China’s access to key AI memory chips such as Micron and SK Hynix. These measures are aimed at hindering companies such as Micron, South Korea’s SK Hynix and Samsung from supplying high-bandwidth memory (HBM) chips to China. Such chips play a vital role in the field of modern technology, especially when running complex generative artificial intelligence programs, they are indispensable key components.

According to some analysts, the motivation behind the US move may be to curb the rapid rise of China’s semiconductor field in order to consolidate its leadership in the global semiconductor industry. However, the implementation of this strategy may cause tension and instability in international trade relations, which in turn will encourage some affected countries to actively explore and implement alternative strategies or strengthen their own semiconductor industry chain construction capabilities.

In general, although the new rule has not yet been settled, its potential influence cannot be ignored. Once the rule is reviewed and officially implemented, its chain reaction will affect every corner of the global semiconductor industry and have a profound impact on the supply chain pattern.