Chinese chip stocks slumped on Wednesday after the U.S. government called for new curbs on high-end technology exports to China, stepping up its protectionist stance amid an escalating trade war between the world’s two largest economies.
After the U.S. announced new export restrictions aimed at restricting Beijing’s capacity to develop cutting-edge military weapons, Chinese semiconductor stocks plummeted on Monday.
According to the broad regulations, businesses that wish to export certain sophisticated computer chips or associated manufacturing equipment to China must first get a licence, according to a release from the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce on Friday.
The measures, which took effect this month, build on earlier American efforts to restrict Chinese corporations’ access to crucial technology.
Notably, the modifications also imply that foreign businesses will want a licence if they employ American equipment to create particular high-end chips for export to China.
The U.S. announcement stated that “these rules make clear that measures taken by foreign governments that impede BIS from making compliance judgments would have an impact on a company’s access to U.S. technology through inclusion to the Entity List.”
The U.S. said that it will issue a temporary licence allowing companies to produce certain of the high-tech goods in China for use outside of the nation from October 21 through April of the following year.
Chinese chips stocks tumble
In line with a general market decline, Semiconductor Manufacturing International Corporation, the largest chipmaker in China, traded 3% down Monday afternoon in Hong Kong.
As of Monday afternoon, Hua Hong Semiconductor had fallen by roughly 9%, while Shanghai Fudan Microelectronics had fallen by more than 20%.
Concerns about dwindling demand caused shares of American chipmakers Nvidia and AMD to decline during Friday’s trading session.
According to an official English-language translation, Chinese Ministry of Foreign Affairs Spokesperson Mao Ning stated during a briefing over the weekend that “the U.S. has been misusing export control mechanisms to willfully hinder and handicap Chinese firms.”
Such behaviour, according to her, violates both international trade laws and the idea of fair competition. It will undermine not just the legal rights and interests of Chinese corporations but also those of American businesses.
Mao made no mention of any intended Chinese defence strategies.
The worldwide supply chain for semiconductors is quite specialised. The most cutting-edge technology is only owned by a small number of corporations, but China has been significantly investing in local players in an effort to catch up.
The most cutting-edge semiconductors are manufactured primarily by Taiwan Semiconductor Manufacturing Company. The only business in the world capable of producing the extremely intricate machinery required to generate the most cutting-edge chips is ASML, situated in the Netherlands.
On the other hand, American businesses like Lam Research, KLA, and Applied Materials are market leaders for other chip-making technologies.
Assessing the damage
The impact of the new U.S. regulations on business is yet to be determined.
Previously, the U.S. government placed the Chinese firms Huawei and SMIC on a blacklist, requiring vendors to seek a licence before doing business with them.
However, Reuters reports that suppliers to those two businesses acquired permits last year to do billions of dollars’ worth of business.
According to the recent regulation revisions, the U.S. Bureau of Industry and Security will now receive at least 1,600 more applications for new licences each year.
According to Reuters, a senior U.S. government official stated in a briefing on Thursday that international collaboration is also required.
The official stated in the paper that “we understand that the unilateral measures we are putting in place would eventually lose their efficacy if other nations don’t join us.” “And we run the danger of undermining American technological supremacy if overseas rivals are not subject to comparable constraints.”
A request for comment on the claim from CNBC was not immediately answered by the American embassy in Beijing.