U.S. aims to hobble China’s chip industry with sweeping new export rules

By Stephen Nellis and Karen Freifeld

(Reuters) – The Biden administration on Friday published a sweeping set of export controls, including a measure to cut China off from certain semiconductor chips made anywhere in the world with U.S. tools, vastly expanding its reach in its bid to slow Beijing’s technological and military advances.

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

The raft of measures could amount to the biggest shift in U.S. policy toward shipping technology to China since the 1990s. If effective, they could set China’s chip manufacturing industry back years by forcing American and foreign companies that use U.S. technology to cut off support for some of China’s leading factories and chip designers.

In a briefing with reporters on Thursday previewing the rules, senior government officials said many of the rules sought to prevent foreign firms from selling advanced chips to China or supplying Chinese firms with tools to make their own advanced chips. They conceded, however, that they have not yet secured any promises that allied nations will implement similar measures and that discussions with those nations are ongoing.

“We recognize that the unilateral controls we’re putting into place will lose effectiveness over time if other countries don’t join us,” one official said. “And we risk harming U.S. technology leadership if foreign competitors are not subject to similar controls.”

The expansion of U.S. powers to control exports to China of chips made with U.S. tools is based on a broadening of the so-called “foreign direct product rule.” It was previously expanded to give the U.S. government authority to control exports of chips made overseas to Chinese telecoms giant Huawei Technologies Co Ltd and later to stop the flow of semiconductors to Russia after its invasion of Ukraine.

Earlier on Friday, the United States added China’s top memory chip maker YMTC and 30 other Chinese entities to a list of companies that U.S. officials cannot inspect, ratcheting up tensions with Beijing and taking aim at a firm that has long troubled the Biden administration.

The “unverified list” is a potential stepping stone to tougher economic blacklists, but companies that comply with U.S. inspection rules can come off the list. On Friday, U.S. officials removed nine such firms, including China’s Wuxi Biologics, which makes ingredients for AstraZeneca (NASDAQ:)’s COVID-19 vaccine.

The new regulations will also severely restrict export of U.S. equipment to Chinese memory chip makers and formalize letters sent to Nvidia (NASDAQ:) Corp and Advanced Micro Devices Inc (NASDAQ:) restricting shipments to China of chips used in supercomputing systems that nations around the world rely on to develop nuclear weapons and other military technologies.

Reuters was first to report key details of the new restrictions on memory chip makers, including a reprieve for foreign companies operating in China and the moves to broaden restrictions on shipments to China of technologies from KLA, Lam, Applied Materials, Nvidia and AMD.

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