China relies heavily on imported semiconductor chips even though it’s the world’s largest exporter of them. In fact, more than 90% of chips produced in China are made by foreign firms. And, it’s seen chip imports contract considerably this year. From January to August, its imports were down 12.8% from the same period last year. China’s semiconductor industry has seen obstacles in recent economic headwinds and rising tensions with the US. Last month, the US sent letters banning Nvidia and Advanced Micro Devices from selling certain advanced chips to China.
Soon, the Biden administration will be announcing even more curbs on these exports. Next month, according to insiders, the US plans to expand the rules based on “is-informed letters" sent out earlier this year outlining restrictions for three semiconductor companies. The letters stopped these companies from exporting chipmaking equipment to Chinese factories that produce semiconductors with sub-14 nanometer processes without a license. In chip manufacturing, the lower the nanometer, the more advanced the chip. So, essentially, raising the restriction level to 14 nanometers from 10 (which is the current restriction level) covers a broader range of equipment. We’ll have to wait to see how this plays out, but making these letters official could expand the restrictions to more US companies.
A senior official with the US Commerce Department didn’t confirm the upcoming changes but did say, “As a general rule, we look to codify any restrictions that are in is-informed letters with a regulatory change." Last month, the department more generally confirmed regulatory measures, saying, “The Biden Administration is focused on impairing PRC efforts to manufacture advanced semiconductors to address significant national security risks to the United States."
“The strategy is to choke off China and they have discovered that chips are a choke point. They can’t make this stuff, they can’t make the manufacturing equipment. That will change," said Jim Lewis, a technology expert at the Center for Strategic and International Studies.
“We are now hearing that members should expect a series of rules or perhaps an overarching rule prior to the mid-term election to codify the guidance in recently issued (Commerce Department) ‘is-informed’ letters to chip equipment and chip design companies," said the US Chamber of Commerce.
“China firmly opposes this," said China Commerce Ministry spokesperson Shu Jueting last month in response to export curbs. “The US side should immediately stop its erroneous practices, treat companies from all countries equally, including from China, and do more to contribute to world economic stability."