US restrictions on microchips could curb China’s ambitions and escalate tech war – CNN | CarTailz

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CNN business

Chinese leader Xi Jinping’s push to “win the battle” on core technologies and bolster China’s position as a tech superpower could be this Analysts say it is severely undermined by Washington’s unprecedented moves to limit sales of advanced chips and chip-making equipment to the country.

On Oct. 7, the Biden administration unveiled a sweeping set of export controls that would ban Chinese companies from buying advanced chips and chip-making equipment without a license. The rule also restricts the ability of “US persons” — including US citizens or green card holders — to provide support for the “development or production” of chips at certain manufacturing facilities in China.

“US moves pose a major threat to China’s technological ambitions,” said Mark Williams and Zichun Huang, analysts at Capital Economics, in a recent research report. The analysts pointed out that the global semiconductor industry is “almost entirely” dependent on the United States and its allied countries for chip design, the tools to make them and manufacturing.

“Without these,” the analysts said, “Chinese firms will not only lose access to advanced chips, but also to technologies and inputs that, over time, would have allowed domestic chipmakers to climb the ladder and stay at the top.” compete.” They added, “The US has chopped off the rungs.”

Chips are critical to everything from smartphones and self-driving cars to advanced computing and weapons manufacturing. US officials have spoken of the move as a measure to protect national security interests. It also comes as the United States seeks to bolster its domestic chip-making capabilities with heavy investment after chip shortages early in the pandemic highlighted the country’s reliance on foreign imports.

Arthur Dong, a teaching professor at Georgetown University’s McDonough School of Business, described the recent US sanctions as “unprecedented in modern times”.

Previously, the US government banned the sale of certain technology products to certain Chinese companies such as Huawei. It has also prompted some major U.S. chipmakers to halt shipments to China. But the latest move is much more expansive and significant. It not only bans the export to China of advanced chips made anywhere in the world using US technology, but also blocks the export of the tools used to make them.

With its “Made in China 2025” roadmap, Beijing aims to make China a world leader in a variety of industries, including artificial intelligence (AI), 5G wireless and quantum computing. At the Communist Party Congress earlier this month, where he backed a historic third term, Xi stressed that the nation will prioritize technology and innovation and expand his talent pool to develop homegrown technologies.

“China will seek to rise among the ranks of the world’s most innovative countries by 2035 with great self-sufficiency and strength in science and technology,” Xi said in the Party Congress report released Oct. 16.

Dong said the recent US sanctions would make it harder for China to move forward in both AI and 5G, given the role advanced chips play in both industries.

“Under any circumstances,” said Williams of Capital Economics, “China would have a hard time achieving global technology leadership.”

A dramatic and potentially disruptive aspect of the rules is the ban on American citizens and legal residents from collaborating with Chinese chip companies.

Dane Chamorro, a partner at Control Risks, a global risk consultancy based in London, said such action would normally be taken “only against ‘rogue regimes'” like Iran and North Korea. The decision to use this against China was “unprecedented,” Chamorro said.

Many executives working for Chinese firms may now have to choose between keeping their jobs or operating as legitimate US citizens. “You can’t do both,” Chamorro said.

The ban could lead to a mass resignation of top executives and core research staff working at Chinese chip companies, which will hit the industry hard, said Georgetown University’s Dong.

So far, it’s not clear how many American workers there are in China’s domestic chip industry. However, an examination of company records shows that more than a dozen chip companies have executives who hold US citizenship or green cards. At Advanced Micro-Fabrication Equipment China (AMEC), one of the country’s largest semiconductor equipment makers, at least seven executives, including founder and chairman Gerald Yin, hold US citizenship, the latest company documents show.

A woman checks the quality of a chip at an IC encapsulation maker in Nantong, east China's Jiangsu Province, Friday, September 16, 2022.

Other examples include Shu Qingming and Cheng Taiyi, who currently serve as vice chairman and vice general manager, respectively, at GigaDevice Semiconductor, an advanced memory chip company. The Financial Times report said in a recent report that Yangtze Memory Technologies has already asked American employees in core tech positions to leave the company, citing anonymous sources. But it’s unclear how many.

AMEC, GigaDevice Semiconductor and Yangtze Memory Technologies did not respond to requests for comment.

If these executives depart, “it will create a leadership and technology gap in China’s chipmaking industry,” Dong said, as the country loses executives with years of chipmaking experience in an industry with “one of the most complex manufacturing processes known to man.” ”

While much of the world’s chip manufacturing is concentrated in East Asia, China relies on foreign chips, particularly for advanced processor and memory chips and related devices.

It is the world’s largest importer of semiconductors and has spent more money buying semiconductors than oil. In 2021, China bought chips worth a record $414 billion, or more than 16% of the value of its total imports, according to government statistics.

But some Western suppliers have already begun preparing to halt sales to China in response to US export restrictions.

ASM International (ASMIY), the Dutch semiconductor equipment supplier, said on Wednesday it expects the export restrictions to affect more than 40% of its sales in China. The country accounted for 16% of ASML’s equipment sales in the first nine months of this year.

Lam Research (LRCX)h, which offers semiconductor equipment and services, also said last week that it could lose between $2 billion and $2.5 billion in annual revenue in 2023 due to U.S. export restrictions.

The recently concluded party convention has slowed China’s response to the latest US export controls, analysts said. But if Beijing begins to assess the importance of the measures, it could retaliate. Xi is “concerned” about U.S. plans to boost domestic chip production because his administration will limit China’s manufacturing capabilities, U.S. President Joe Biden said in a speech on Thursday.

“This conflict is just beginning,” Chamorro said.

Chamorro said the most valuable “card” in China’s hand could be the supply of processed rare earth minerals, which Beijing could embargo on. Rare earth minerals are important materials in the production of electric vehicles, batteries and renewable energy systems.

“These are not easy or quick to replace and China dominates the processing and supply chain,” Chamorro said.

The Biden administration, meanwhile, is also considering further restrictions on other technology exports to China, a senior US Commerce Department official said Thursday, according to the New York Times.

If either country takes these steps, it could take the technological arms race between the United States and China to a whole new level.

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