China challenges US chip curbs with WTO lawsuit, 1 trillion Yuan stimulus
- The Ministry of Commerce in China accused the US of taking “a typical practice of trade protectionism” in curbing the export of chip products to China.
- Beijing will use the WTO’s dispute settlement mechanism to challenge US export controls to defend its rights and interests.
- Meanwhile, China is also working on a more than 1 trillion-yuan (US$143 billion) support package for its semiconductor industry.
When the Biden administration unveiled a sweeping set of export controls in October, banning Chinese companies from buying advanced chips and chip-making equipment without a license, many anticipated retaliation from Beijing. After all, Washington’s unprecedented steps could very well cripple China’s technological advancement domestically. It wasn’t until this week that China had addressed the export controls imposed against them.
What set China apart from the US was the fact that it did not react in any ways that could impact semiconductor players from both nations. Instead, China took it to the World Trade Organization directly, filing a dispute in an effort to overturn the US-imposed export controls. According to a statement from its Ministry of Commerce, China lodged a complaint with the WTO on Monday.
China’s commerce ministry also highlighted on Monday its WTO complaint was a legal and necessary measure to defend its “legitimate rights and interests”. The ministry also accused the US of taking “a typical practice of trade protectionism” in curbing the export of chip products to China on security grounds. “In recent years, the US side has continuously overstretched the notion of national security, abused export control measures, [and] hindered the normal international trade of chips and other products.
“[That] threatened the stability of global supply chains and industrial chains, undermined the international economic and trade order, violated international economic and trade rules, defied basic economic laws, and harmed the interests of global peace and development,” the statement reads, according to the South China Morning Post.
When the US introduced those rules two months ago, it also included restrictions on semiconductors designed for artificial intelligence applications. The move has effectively kneecapped China’s semiconductor industry, and escalated the tech war between the two countries. Now, Beijing will use the WTO’s dispute settlement mechanism to challenge US export controls on products such as chips to China to defend its rights and interests, its Ministry of Commerce said in a statement posted to its website.
The Ministry also urged the US to abandon what it called zero-sum thinking and correct its mistakes in a timely manner, otherwise take steps to put trade between the countries on a normal footing and add stability to international supply chains. A spokesman for the Office of the US Trade Representative confirmed that the US has received “a request for consultations from the People’s Republic of China related to certain US actions affecting semiconductors”
“As we have already communicated to the PRC, these targeted actions relate to national security, and the WTO is not the appropriate forum to discuss issues related to national security,” he said, according to the Wall Street Journal. Frankly, even if China is successful with its case, the WTO lacks the ability to force the US to reverse its actions on the chip curbs.
Firstly, Washington has been asking its allies to go along with the restrictions, and that is already putting more pressure on China. For US companies, meanwhile, the rules have caused some pain because China is the largest market for semiconductors, and chipmakers that sell to the country expect to lose billions in revenue.
Essentially, China’s move marks the first stage of the WTO’s lengthy dispute resolution process. According to Bloomberg, the US now has 60 days to enter negotiations. If that doesn’t resolve the issue, Beijing can request the establishment of a WTO panel. “It could take several years for the case to work its way through the WTO’s backlogged dispute-settlement system,” a Bloomberg report reads.
Meanwhile, China prepares domestic support package to fight US chip curbs
While filing the WTO lawsuit, China is also said to be preparing a support package worth 1 trillion Yuan for its local semiconductor players, a major step towards achieving chip self-sufficiency. According to a report by Reuters, Beijing plans to roll out what will be “one of its biggest fiscal incentive packages over five years”.
Citing two people familiar with the matter, Reuters said the support package will shape up to be in the form of subsidies and tax credits, mainly to bolster semiconductor production and research activities at home. As analysts have expected, the move signals a more direct approach by China in shaping the future of an industry.
The stimulus package could come in effect as soon as the first quarter of next year, two of the sources told Reuters. “The majority of the financial assistance would be used to subsidize the purchases of domestic semiconductor equipment by Chinese firms, mainly semiconductor fabrication plants, or fabs, they said,” the report noted. Those companies would be entitled to a 20% subsidy on the cost of purchases.
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