China warns Joe Biden’s new semiconductor restrictions will hurt economic recovery

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The United States wants to ensure that Chinese companies do not transfer technology to the country’s military and that chipmakers in China do not develop the capacity to manufacture advanced semiconductors themselves.

The rules come at a difficult time for the chip industry, which is suffering a sharp drop in demand for components for personal computers and smartphones. Shares of many of the world’s largest semiconductor makers fell on Friday on reports that the crisis could be even worse than expected.

The government’s actions added another layer of uncertainty for investors who were already trying to determine how much demand for semiconductors might decline. Companies such as Applied Materials and Intel cannot easily move away from China, the largest single market for their products and a key part of a global supply chain for electronics used around the world.

Plunge shares

Chipmaker stocks have struggled throughout 2022, following three straight years in which the sector has climbed 40-60%. The Philadelphia Stock Exchange’s semiconductor index is down nearly 40% so far this year, on course for its biggest annual decline since 2008, and recently fell to its lowest level since November. 2020.

When the new rules take effect, it will be more difficult for suppliers of chips used in China’s supercomputers and related equipment to get approval to fill orders. They should assume that requests will be denied, senior Commerce Department officials said.

The trade also imposed a series of restrictions on the supply of American machines capable of manufacturing advanced semiconductors. It tackles the kinds of memory chips and logic components that are at the heart of cutting-edge designs.

While there would be more leeway for foreign companies needing technology for their own operations in China or for parties who can prove they were manufacturing things there for immediate export elsewhere – Commerce said that ‘it would enforce the rules and also cut support for existing machine deployments. covered by the restrictions.

While the United States is home to the largest bloc of companies that design vital electronic components and supply the complex machinery to manufacture them, other regions have capabilities that could undermine some of the government’s efforts.

Commerce Department officials acknowledged that overseas cooperation was necessary to avoid hampering the initiatives and said talks were underway with other parties around the world on the matter.

Additional Barriers

For companies with factories in China, including non-US companies, the rules would create additional hurdles and require government approval.

South Korea’s SK Hynix is ​​one of the world’s largest memory chip makers and has facilities in China as part of a supply network that sends components around the world.

“The new measures restrict the sale of equipment for memory products of a certain technology level or higher, but allow Korean chipmakers to export if they have a license from the Department of Commerce,” the statement said. company in a press release. “SK Hynix is ​​ready to do everything possible to obtain the license from the US government and will work closely with the Korean government for this.”

Separately, Commerce added more names to a list of companies it considered “unverified,” meaning it doesn’t know where their products end up being used. The 31 additions are all Chinese. This indicates that US vendors would face new hurdles in selling technology to these entities.

The biggest name to add to the list is Yangtze Memory Technologies. The memory chip maker is widely seen as China’s best bet to break into the industry’s top ranks and has been making strides with advanced on-chip storage products.

The U.S. chip industry has expressed concern that overly aggressive action could disadvantage domestic companies. They worry that the loss of sales in China will hurt their ability to spend on innovation and potentially help their competitors overseas.

The Semiconductor Industry Association, which represents all of the largest U.S. chipmakers, said it is evaluating the impact of new export controls and will ensure compliance.

A bill signed by Mr Biden in August promised to inject about $52 billion ($82 billion) into the US semiconductor industry.

Bloomberg

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