US Plans New Chip Curbs on China, Softer Than Earlier Proposals

US Plans New Chip Curbs on China, Softer Than Earlier Proposals

The Biden administration is preparing new restrictions on the sale of semiconductor equipment and AI memory chips to China, aiming to intensify its crackdown on Beijing’s tech ambitions. However, these measures will be less severe than previously considered proposals, according to sources familiar with the matter.

Key Points of the Proposal

Trade Restriction List Updates:

The US plans to add some Chinese companies to its trade restriction list, focusing on suppliers to Huawei Technologies Co., a leading Chinese telecom company.

Exclusion: ChangXin Memory Technologies Inc., which is working on AI memory chips, will not be included on the entity list.

High-Bandwidth Memory Chips:

The new rules target high-bandwidth memory chips, crucial for AI applications.

Companies like Samsung Electronics Co., SK Hynix Inc., and Micron Technology Inc. are expected to feel the impact.

Sanctions on Chip Factories:

Two factories owned by Semiconductor Manufacturing International Corp. (SMIC), Huawei’s chipmaking partner, are set to be sanctioned.

Over 100 additional Chinese companies producing semiconductor manufacturing equipment will be added to the entity list.

Diplomatic Challenges

The US has faced resistance from allies like Japan and the Netherlands in imposing stricter curbs on China.

Earlier Tactics: This summer, US officials threatened to apply the Foreign Direct Product Rule (FDPR) to foreign companies that continued selling to China, aiming to pressure Japan and the Netherlands to adopt stricter measures.

Outcome: Allies viewed this as overreach, showing little interest in aligning with the US, especially ahead of political uncertainties in Washington.

Under the new proposal, Japan and the Netherlands would remain exempt from FDPR provisions, and it is unclear if they will impose additional restrictions on Chinese companies.

Impact on Global Markets

The announcement positively affected chip stocks in Asia and Europe:

ASML Holding NV: Rose by 5.5%.

Tokyo Electron Ltd.: Jumped 7%.

Kokusai Electric Corp.: Surged nearly 13%.

Analysts believe this softer approach is "better than the worst-case scenario" initially feared by markets.

Reactions from US Chipmakers

American chip equipment makers, including Lam Research Corp., Applied Materials Inc., and KLA Corp., view the adjusted measures as a partial victory.

These companies argued that strict unilateral sanctions would harm their competitiveness against foreign rivals like Tokyo Electron and ASML, whose governments haven’t fully adopted US measures.

Japan and the Netherlands have imposed some curbs on China, aligning with earlier US restrictions from 2022, but they’ve resisted further tightening.

Next Steps

The new rules could be released as early as next week, although details and timing remain subject to change. The Commerce Department’s Bureau of Industry and Security and the National Security Council have declined to comment on the issue.

Market Outlook: While the curbs still represent an escalation, they strike a balance between targeting China’s tech sector and minimizing harm to American and allied industries.