Computer chip. Photo credit: Brian Kostiuk

US sanctions Chinese chip industry

With new US sanctions against China, which came into force on October 12, the Biden administration delivered a serious blow against the Asian giant. Any cooperation with Chinese chip and memory manufacturers and in particular the export of semiconductors to China is now prohibited.

Published: October 31, 2022, 6:22 am

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    Foreign companies that do not comply with these US requirements also run the risk of becoming victims of American sanctions. What is particularly disastrous is that the new sanctions require all US citizens working in China to immediately stop working for Chinese partner companies or company subsidiaries – otherwise there is even a risk of their US citizenship being revoked.

    Chinese media such as the South China Morning Post reported that, as a result, US engineers have already left China “en masse”.

    The US measures could have serious consequences for Chinese industry and the Chinese military. According to the German business daily Handelsblatt, the new trade restrictions could lead to massive supply bottlenecks and “throw the Chinese chip industry back by years”.

    The Sino-American analyst Jordan Schneider goes even further and speaks in a detailed tweet of an “industry-wide decapitation” of the Chinese chip industry. The US plans meant “annihilation” for China’s chip manufacturers.

    The US government justified its latest sanctions as a “national emergency” in relation to telecommunications and information technology.

    Some time ago, US President Biden commissioned the establishment of a completely American semiconductor industry. On October 7, he said: “The supply chain will start here and end here.”

    But in a Politico opinion piece, another analyst lamented that it could be up to “2 years before officers actually move in [to the US State Department’s new ‘China House’]”. The urge to compete with China while struggling to build a 60-person office in less than a year, does not bode well for American ambitions to compete.

    From China’s perspective, it will be difficult to isolate the country. It is therefore doubtful whether the US can enforce unilateral executive orders to prevent non-US chip companies from conducting normal cooperation and trade with China.

    For non-US companies refusing to join a chip boycott, it means escaping unilateral US bans which will eventually undercut US companies’ competitiveness by depriving them of the huge Chinese market.

    “US restrictions will only accelerate the development of China’s chip sector, because the Chinese market won’t wait for the US to come to its senses. If the Chinese chip sector catches up quickly and no longer relies on imports, it will not be a $2,5 billion loss for a single US company, but hundreds of billions of dollars of loss for the chip industry,” the Global Times opined.

    The export ban in May 2019 of Chinese tech firm Huawei, saw top American chipmakers reporting a median revenue decline of up to 9 percent in some cases.

    The Biden administration’s latest tech controls threaten to accelerate such losses, creating chaos in the global semiconductor sector, especially if China decides to retaliate. US companies could lose 18 percent of their global market share and 37 percent of their revenues if the US completely bans semiconductor companies from selling to Chinese customers.

    The German government meanwhile plans to approve a Chinese takeover of the chip production of Dortmund-based company Elmos, business daily Handelsblatt reported, citing government sources.

    The economy ministry is examining the sale of Elmos‘ chip factory to competitor Silex, a Swedish company that is a subsidiary of Chinese group Sai Microelectronics, with approval expected in the coming weeks. The ministry had no immediate comment when contacted by Reuters.

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