China challenges US chip curbs with WTO lawsuit, 1 trillion Yuan stimulus

China challenges US chip curbs with WTO lawsuit, 1 trillion Yuan stimulus(Source – Shutterstock)

The US escalates its semiconductor war on China. What happens now?

  • The US imposed sweeping restrictions on China to cripple its semiconductor industry.
  • License will be needed to export certain chips to China to be used in advanced AI calculations and supercomputing.
  • The US is also blocking foreign-made chips that are manufactured with American technology from being sold to China.
  • Further controls are being placed on items China could use to develop its own manufacturing-equipment industry.

Up till now, it is safe to say that the countless US sanctions imposed on China have helped supercharge the mainland’s semiconductor industry. It spurred the appetite for home-grown components with China-based suppliers of design software, processors and gear vital to chipmaking expanding revenue at several times the likes of global leaders Taiwan Semiconductor Manufacturing Co. or ASML Holding NV.

But there is no doubt that the road to self-sufficiency for the Chinese chip industry were paved with countless sanctions — and suspicions. After all, China’s military and economic ambitions are envied and feared by many — especially the US. So in an effort to protect their own interests, the US has constantly walked on the path of crippling Beijing’s access to critical technologies.

What started as a crackdown on the telecom giant Huawei by the Trump administration, has morphed into something far larger. Today, the Biden administration is targeting China’s striving self-sufficiency goal — and it no longer involves only a selected companies. The US last week introduced sweeping export controls that will severely complicate efforts by any Chinese companies to develop cutting-edge technologies from semiconductors and supercomputers to surveillance systems and advanced weapons. 

While the sweeping control is said to be an approach to control China’s “weapon powers,” it is apparent that the Biden administration is basically just striking at the mainland’s effort to build its own chip industry. The moves are in fact the US most aggressive yet as it tries to stop China from developing technological capabilities it deems as a threat. 

The rules, some of which go into effect immediately, according to Reuters, build on restrictions sent in letters earlier this year to top toolmakers KLA Corp, Lam Research Corp and Applied Materials Inc. Those restrictrictions required them to halt shipments of equipment to wholly Chinese-owned factories producing advanced logic chips.

This time, companies will no longer be allowed to supply advanced computing chips, chip-making equipment and other products to China hereon, unless they receive a special license. Most of those licenses should be presumed denied, though certain shipments to facilities operated by US companies or allied countries will be evaluated case by case, a senior administration official said in a briefing last week Thursday.

The US Commerce also put in place a raft of restrictions on supplying US machinery that’s capable of making advanced semiconductors. It’s targeting the types of memory and logic chips that are at the heart of state-of-the-art designs. Specifically, the restrictions cover production of logic chips using so-called non planar transistors made with 16-nanometer technology or anything more advanced than that, 18-nanometer dynamic random access memory chips and Nand-style flash memory chips with 128 layers or more. 

Generally speaking, the smaller the number of nanometers, the more capable the chip. The Department even included China’s top memory chipmaker YMTC and 30 other Chinese entities to a so-called “unverified” trade list. Another 28 companies were added to the “entity list”, including several provincial arms of China’s National Computer Center, the Beijing Institute of Technology and Beijing SenseTime Technology Development, a subsidiary of a major Chinese AI company. These firms will now be subject to government licensing and sanctions requirements.

The new rules would also block shipments of a broad array of chips for use in Chinese supercomputing systems. The US defines a supercomputer as any system with more than 100 petaflops of computing power within a floor space of 595m2, a definition that two industry sources said could also hit some commercial data centers at Chinese tech giants.

In short, the sweeping restrictions pretty much reflects the US power to blacklist any company they want in China within a short period of time.

What does this mean for China and its semiconductor goal?

Certainly, Chinese state media and officials had raged against the action, warning of economic consequences and stirring speculation about potential retaliation. Frankly, depending on how broadly Washington enforces the restrictions, the impact could extend well beyond semiconductors and into industries that rely on high-end computing, from electric vehicles and aerospace to simple gadgets like smartphones.

According to Bloomberg’s report, the both US and China are now officially in an “economic war,” quoting SemiAnalysis chief analyst Dylan Patel. “This is the US salvo against China’s efforts to build its domestic tech capabilities,” said Patel, who estimates the restrictions could reduce global technology and industry trade by hundreds of billions of dollars. “It’s the US firing back, making clear they will fight back.” Another Chinese analyst suggests that there is “no possibility of reconciliation” any longer.

Local media reports noted that Chinese Foreign Ministry spokesperson Mao Ning had said on weekend that the measures, which are set to enter into force this month, are unfair and will “also hurt the interests of US companies.” They “deal a blow to global industrial and supply chains and world economic recovery,” she said.

Even Nomura Holdings Inc analyst David Wong reckon the curbs as a “big setback to China” and “bad news” for global semiconductors. He wrote in a note that China’s localization efforts may also be “at risk as it may not be able to use advanced foundries in Taiwan and Korea.” Another way to look at this new scenario is that the intensifying Sino-American tensions could further spur Beijing to step up support for homegrown firms in a bid to achieve its goal of becoming an independent chip powerhouse. It can go both ways and the US has no choice but to face it.