China gathers chip firms for emergency talks after new US curbs

Many of the participants argued that the US curbs collectively spell doom for their industry. PHOTO: REUTERS

BEIJING – China’s top technology overseer convened a series of emergency meetings over the past week with leading semiconductor companies, seeking to assess the damage from the Biden administration’s sweeping chip restrictions and pledging support for the critical sector.

The Ministry of Industry and Information Technology (MIIT) has summoned executives from firms including Yangtze Memory Technologies and supercomputer specialist Dawning Information Industry into closed-door meetings since the United States unveiled measures to contain China’s technological ambitions.

MIIT officials appeared uncertain about the way forward and at times appeared to have as many questions as answers for the chipmakers, people familiar with the discussions said. While they refrained from hinting about countermeasures, officials stressed that the domestic IT market would provide sufficient demand for affected companies to keep operating, the people said.

Many of the participants argued that the US curbs collectively spell doom for their industry, as well as China’s ambitions to untether its economy from American technology. Yangtze Memory, among China’s best hopes of getting into cutting-edge chipmaking, warned the MIIT that its future may be in jeopardy, according to one of the people.

Artificial intelligence (AI) chipmaker Biren Technology is a telling example of how Chinese semiconductor start-ups went from stardom to crisis in a matter of days. The chip designer was eyeing a US$2.7 billion (S$3.85 billion) valuation and declared in August it had released the first general-purpose graphics processing unit, “setting a new record in global computing power”.

But Biren had contracted with Taiwan Semiconductor Manufacturing Company (TSMC) to produce its chips, using advanced 7-nanometre technology. Now, TSMC may have to stop working with the start-up under President Joe Biden’s regulations, and no company in China has the capabilities to replace it. 

United States firms have withdrawn employees from promising firms, including top memory maker Yangtze, while non-American suppliers such as ASML Holding have halted support for local customers. Dawning Information, China’s leading builder of supercomputers, and its unit Hygon are scrambling to find alternatives to the American silicon they need to keep going. 

“Biden’s new chip export controls are a huge blow to the CPC’s science and technology ambitions,” Mr Jordan Schneider, an analyst at Rhodium Group, wrote on Twitter, using the abbreviation for the Communist Party of China.

It is unclear how Beijing will react to the new restrictions, the Biden administration’s most aggressive yet, as it tries to stop China from developing capabilities it sees as threatening. 

Chinese President Xi Jinping, in a landmark address over the weekend, pledged tech self-reliance to prevail in a battle with the US for technological supremacy – which many took as a sign that Beijing will redouble policy and financial support for sectors such as AI and chips. Mr Xi, however, stopped short of directly addressing Washington’s latest moves or outlining new aid. Officials have not indicated whether they were considering measures to retaliate.

Earlier this month, the US Commerce Department unveiled sweeping regulations that limit the sale of semiconductors and chipmaking equipment to Chinese customers, striking at the foundation of the country’s efforts to build its own chip industry. The US also added 31 organisations to its unverified list, including Yangtze Memory and chip equipment maker Naura Technology Group, severely limiting their ability to buy hardware from abroad.

“We find the newly announced restrictions well-thought-out and plug many loopholes that the prior restrictions failed to cover,” Bernstein analysts wrote last week. “China won’t be able to advance in semiconductor technologies as fast as before and probably has no choice but to focus on the mature part.”

The global chip industry, which relies on China as the world’s biggest single consumer of semiconductors, has been bracing itself for retaliation of some fashion from Beijing. US firm Lam Research warned that its revenue could halve in China – a market that yields roughly 30 per cent of its overall business. ASML, however, suggested “fairly limited” impact from the export controls.

Local firms are, meanwhile, counting on tangible support. 

Many tech powerhouses in China rely on government-backed projects for growth. This year, Beijing ordered government agencies and state firms to replace foreign PCs, potentially creating demand for 50 million Chinese-branded computers, Bloomberg News has reported.

But depending on how broadly Washington enforces the restrictions, the impact could extend well beyond semiconductors and into industries that rely on high-end computing, such as electric vehicles, aerospace and smartphones. Chip sector leaders from Intel to TSMC have sold off in recent days, spooked by the growing uncertainty at a time when the world is braced for a potential recession.

“When Beijing is caught flat-footed, its initial reaction is always slow,” according to a note from Fathom China. “Ministers are not authorised to make decisions on their own; they need the big bosses to decide. And right now, the big bosses are busy with the Party Congress.” BLOOMBERG

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