Biden administration clamps down on China’s access to chip technology

“The threat environment is always changing, and we are updating our policies today to make sure we’re addressing the challenges posed by the PRC while we continue our outreach and coordination with allies and partners,” he said, referring to the People’s Republic of China.

Companies will no longer be allowed to supply advanced computing chips, chipmaking equipment and other products to China unless they receive a special license. Most of those licenses will be denied, though certain shipments to facilities operated by U.S. companies or allied countries will be evaluated on a case-by-case basis, a senior administration official said in a briefing Thursday.

The restrictions limit U.S. exports of the cutting-edge chips called graphic processing units that are used to power artificial intelligence applications, and place broad limits on chips destined for supercomputers in China. The rules also ban U.S.-based companies that make the equipment used to manufacture advanced logic and memory chips from selling that machinery to China without a license.

Perhaps most significantly, the Biden administration also imposed broad international restrictions that will prohibit companies anywhere in the world from selling chips used in artificial intelligence and supercomputing in China, if they are made with U.S. technology, software or machinery. The restrictions used what is know as the foreign direct product rule, which was last used by President Donald Trump to cripple Huawei.

Another foreign direct product rule bans a broader range of products made outside the United States with American technology from being sent to 28 Chinese companies that have been placed on an “entity list” over national security concerns.

Those companies include Beijing Sensetime Technology Development Co., a unit of major Chinese artificial intelligence company, SenseTime. Also included are Dahua Technology, Higon, IFLYTEK, Megvii Technology, Sugon, Tianjian Phytium Information Technology, Sunway Microelectronics and Yitu Technologies, as well as a variety of labs and research institutions linked to universities and the Chinese government.

The rules also restrict U.S. citizens from helping to develop the Chinese semiconductor industry to advanced levels. Earlier Friday, the administration announced that it was adding another 31 Chinese companies and institutions to an “unverified list” that limits their ability to obtain a smaller set of certain regulated U.S. items. Among them is Yangtze Memory Technologies Co., Ltd, a major memory chipmaker from which Apple has considered sourcing some products.

It remains to be seen whether the Chinese government will take action in response. Samm Sacks, a senior fellow at Yale Law School who studies technology policy in China, said the new rules could push Beijing to impose restrictions on American companies or firms from other countries that comply with U.S. rules but still want to maintain operations in China.

“The question is: Would this new package cross a red line to trigger a response that we haven’t seen before?” she said. “A lot of people are anticipating it will. I think we’ll have to wait and see.”

The measures come at a particularly sensitive moment for Beijing. Chinese leaders will hold a major political meeting beginning Oct. 16, where leader Xi Jinping is expected to secure a third leadership term, becoming the country’s longest-ruling leader since Mao Zedong.

Liu Pengyu, a spokesperson for the Chinese Embassy in Washington, said the United States was trying “to use its technological prowess as an advantage to hobble and suppress the development of emerging markets and developing countries.”

“The U.S. probably hopes that China and the rest of the developing world will forever stay at the lower end of the industrial chain,” he added.

The Chinese government has invested heavily in building up its semiconductor industry, but it still lags behind the United States, Taiwan and South Korea in its ability to produce the most advanced chips. In other fields, such as artificial intelligence, China is no longer significantly behind the United States, but those technologies mostly rely on advanced chips that are designed or fabricated by non-Chinese firms.

New limits on sales of chipmaking equipment are also expected to clamp down on the operations of China’s homegrown chipmakers, including Semiconductor Manufacturing International Corp., Yangtze Memory Technologies Co. and ChangXin Memory Technologies.

The effect of the restrictions will hinge on how the policy is implemented. For most of the measures, the Commerce Department has the discretion to grant companies special licenses to continue selling the restricted products to China, though it said that most would be denied.

Some Republican lawmakers and China hawks have criticized the department for being too willing to issue such licenses, allowing U.S. companies to continue selling sensitive technology to China even when national security may be at stake.

Rep. Michael McCaul, R-Texas, said he intended to use his authority as current ranking member of the House Foreign Affairs Committee to press the Bureau of Industry and Security, which reviews such licenses, on the applications and decisions.

“If Congress finds that BIS is undercutting the spirit of these rules with lax licensing standards, then we’ll assess if the Department of Commerce is the right home for this national security agency,” McCaul said.

With its vast ecosystem of factories, China continues to be a massive and lucrative market for U.S. chip exports. The tiny technologies are crucial to the smartphones, laptops, coffee makers, cars and other goods that Chinese factories pump out for domestic consumption and export to the world.

Many U.S. companies have long argued that their sales to China are an important source of revenue that allows them to reinvest in research and development and retain a competitive edge.

But doing business with China has become much more fraught in the last few years, as the tensions between the United States and China have morphed into a cold war competition. The Chinese government has sought to blur the line between its defense sector and private industry, drawing on Chinese firms that specialize in fields including artificial intelligence, big data, aerospace technologies and quantum computing to fuel the country’s military modernization.

Chinese military drills aimed at intimidating Taiwan, and China’s alignment with Moscow following the Russian invasion of Ukraine have helped to extinguish any goodwill for China in Washington, and strengthened the case for technology regulation.

Still, industry executives and some analysts argue that cutting China off from foreign chips will accelerate Beijing’s push to develop them itself and cause U.S. companies to lose out to foreign competitors, unless other countries also impose similar restrictions.

The Semiconductor Industry Association said Friday that it was assessing the impact of the export controls on the industry and working with companies to ensure compliance.

(Author: Ana Swanson)/(c.2021 The New York Times Company)