US preps China chip curbs that stop short of early proposals

BEIJING – The Biden administration is weighing additional curbs on sales of semiconductor equipment and artificial intelligence memory chips to China that would escalate the US crackdown on Beijing’s tech ambitions but stop short of some stricter measures previously considered, according to people familiar with the matter.

The restrictions could be unveiled as soon as next week, said the people, who emphasised that nothing is final until the new rules are published.

The measures follow months of deliberations by US officials, negotiations with allies in Japan and the Netherlands, and intense lobbying by American chip equipment makers who have warned that tougher measures would bring catastrophic harm to their business.

The latest proposal has key differences from earlier drafts, the people said. The first is which Chinese companies the US would add to a trade restriction list. The US had previously considered sanctioning six suppliers to Huawei Technologies – the telecom giant at the centre of China’s tech industry – and officials are aware of at least a half dozen more, the people said. But they now plan to add only some of those Huawei suppliers to the entity list, with the notable omission of ChangXin Memory Technologies, which is trying to develop AI memory chip technology. 

Japanese chip stocks jumped. Tokyo Electron rose as much as 10 per cent, paring losses in early trading. Kokusai Electric surged 23 per cent, and Screen Holdings also gained about 10 per cent. 

The rules now under consideration would also sanction two chip factories owned by Semiconductor Manufacturing International Corporation, Huawei’s chipmaking partner, the people said. More than 100 additional entity listings would focus on Chinese companies that make semiconductor manufacturing equipment, the people said, rather than fabrication facilities that make the chips themselves. Wired reported earlier the US could come out with new export controls rules as soon as next Dec 2.

That is a partial win for American chip gear makers – Lam Research, Applied Materials and KLA – that have argued for months against unilateral US restrictions on key Chinese companies, including the six Huawei suppliers. They have claimed that such sanctions would put them at an unfair disadvantage compared to foreign rivals Tokyo Electron and Dutch equipment giant ASML Holding, whose governments have not yet agreed to the toughest restrictions on sales to China. Japan and the Netherlands imposed some China curbs to partially match US measures from 2022, but both countries have resisted recent American pressure for even tighter controls. 

American officials this summer tried a hardball negotiation tactic with allies by warning that the US could directly curb the China sales of foreign companies, a step that Japan and the Netherlands viewed as a draconian overreach. The US hope was that threatening to use the so-called foreign direct product rule, or FDPR, would prompt allies to impose their own curbs. But Tokyo and The Hague have shown little interest in aligning with the Biden administration ahead of President-elect Donald Trump’s return to power.

The new US rules, which also restrict some additional tool categories, would still exempt allies including Japan and the Netherlands from FDPR provisions, people familiar with the matter said. It is unclear whether Japan or the Netherlands will eventually impose additional restrictions on the Chinese companies that the US now plans to sanction. 

The latest version of the US controls also would include some provisions around high-bandwidth memory chips, which handle data storage and are essential to artificial intelligence. Samsung Electronics and SK Hynix along with US memory maker Micron Technology are expected to be affected by the new measures, the people said. BLOOMBERG