The U.S. move to protect the semiconductor industry continues apace. This Tuesday, the Commerce Department ordered a ban on selling high-tech equipment to large Chinese semiconductor companies such as Yangtze River Storage, Changxin Storage, SMIC, and others. In addition, foreign residents in the United States will not be allowed to work for Chinese companies without special permission. Experts and analysts said these measures could severely damage China’s semiconductor industry.

On Friday, October 7, the Biden Administration communicated new export control measures, including a ban on the sale to China of semiconductor chips made with U.S. tooling anywhere in the world. Thus, the scope of these new measures is much broader and is not limited only to products for the U.S.-made semiconductor industry.

These new rules build on orders previously sent by the U.S. government to some fabs, such as KLA Corp, Lam Research Corp, and Applied Materials Inc, to restrict equipment sales to Chinese manufacturers producing advanced chips.

In addition, this development is intended to prevent Chinese companies that make high-tech chips from importing U.S. equipment and will formalize letters sent to Nvidia Corp and Advanced Micro Devices Inc (AMD) with orders to restrict shipments to China of chips used in supercomputing systems that nations around the world rely on to develop nuclear weapons and other military technologies.

A supercomputer is any system with more than 100 petaflops of computing power within a 6,400-square-foot footprint. It could also affect the performance and development of Chinese tech giants’ data centers.

At a press conference on Thursday, October 6, senior U.S. government officials said that many of the new export regulations aim to prevent foreign companies from selling advanced chips to China or supplying Chinese companies with tools to make advanced chips.

However, the measures will lose effectiveness if other countries do not cooperate by implementing their own export controls.

“We recognize that the unilateral controls we are implementing will lose effectiveness over time if other countries do not join us,” an official said. “And we risk damaging U.S. technological leadership if foreign competitors are not subject to similar controls.”

The United States added 31 Chinese companies, including research institutions and other groups, to its “blacklist” and will not be able to obtain critical U.S. technologies for semiconductor manufacturing and development.

These sanctions are part of a series of new regulations by the U.S. government to restrict shipments of chips and advanced technology to China, which are intended for military use and also to dominate key industries, such as aerospace, radar surveillance systems, telecommunications development, and others.

“We are appropriately doing everything in our power to protect our national security and prevent sensitive technologies with military applications from being acquired by the military, intelligence and security services of the People’s Republic of China,” said Alan Estevez, U.S. undersecretary of commerce for industry and security.

“We are updating our policies today to ensure that we are addressing the challenges posed by the PRC while continuing our outreach and coordination with allies and partners.”

The restrictions announced last week by the U.S. Commerce Department also “restrict the ability of U.S. persons to support the development or production” of chips at “certain semiconductor fabs located in China.”

Many Chinese executives of Chinese chip companies hold U.S. citizenship, in addition to U.S. employees working in fabs that manufacture products for the Chinese semiconductor industry. Under this new restriction, Americans will not be able to work in these industries. The U.S. government has not yet provided further information on implementing this measure.

Is Xi Jinping’s plan for China’s self-sufficiency in jeopardy?

One of the most critical points of Xi Jinping’s “Made in China 2025” plan is to replace the entire technology supply chain and eliminate China’s dependence on other countries. The strategy boosted the growth and development of China’s semiconductor industry in recent years. However, it is far from reaching the target in 2025.

U.S. hurdles and obstacles severely impede the rapid technological development that Xi Jinping intends to achieve to boost the industry and, in turn, the country’s economy. For example, China cannot buy equipment to make high-tech chips, so factories are trying to adapt nearly obsolete machinery.

“You can modify certain tools. People are creative. But what will the yields be? How can they achieve commercial volumes? Those are the questions,” noted Marco Mezger, a consultant in Taiwan who tracks the global memory chip sector.

Experts have indicated that China is 4 to 5 years behind its overseas competitors, such as U.S. suppliers like KLA Corp, Applied Materials, and Lam Research.

The restrictions have “filled the entire Chinese chip industry with cold feet” because the U.S. is using the semiconductor industry as a strategic tool to counter China’s progress, Gu Wenjun, chief analyst at the firm ICwise, wrote in a research note. “There is no chance of reconciliation,” Gu said. “Unprecedented challenges lie ahead for China’s semiconductor industry.”

The Chinese Communist Party will hold its 20th Congress in the coming days, and Xi Jinping’s third term in office is at stake. These new U.S. sanctions are a blow to his plan for China’s technological self-sufficiency; how will the Chinese leader face these new challenges?

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