US comes out with new controls to limp Chinese chip industry

In a set of export controls published on Friday, the Biden administration has included a measure to cut China off from certain semiconductor chips made anywhere in the world with U.S. equipment. This move is seen as a bid to slow Beijing's technological and military advances.

A few of the rules take immediate effect and are built on restrictions sent in letters this year to top toolmakers like KLA Corp, Lam Research Corp and Applied Materials Inc, effectively requiring them to halt shipments of equipment to wholly Chinese-owned factories producing advanced logic chips.

These measures could amount to the biggest shift in U.S. policy toward shipping technology to China since the 1990s. If effective, they could hobble China's chip manufacturing industry by forcing American and foreign companies that use U.S. technology to cut off support for some of China's leading factories and chip designers.

Senior government officials in a briefing with reporters on Thursday while previewing the rules said that many of the measures were aimed at preventing foreign firms from selling advanced chips to China or supplying Chinese firms with tools to make their own advanced chips. They conceded, however, that they had not secured any promises that allied nations would implement similar measures and that discussions with those nations are ongoing.

"We recognize that the unilateral controls we're putting into place will lose effectiveness over time if other countries don't join us," one official said. "And we risk harming U.S. technology leadership if foreign competitors are not subject to similar controls."

The expansion of U.S. powers to control exports to China of chips made with U.S. tools is based on a broadening of the so-called foreign direct product rule. It was previously expanded to give the U.S. government authority to control exports of chips made overseas to Chinese telecoms giant Huawei Technologies Co Ltd and later to stop the flow of semiconductors to Russia after its invasion of Ukraine.

On Friday, the Biden administration applied the expanded restrictions to China's IFLYTEK, Dahua Technology, and Megvii Technology. These companies have been added to the entity list in 2019 over allegations that they aided Beijing in the suppression of its Uyghur minority group.

The rules published on Friday also block shipments of a broad array of chips for use in Chinese supercomputing systems. The rules define a supercomputer as any system with more than 100 petaflops of computing power within a floor space of 6,400 square feet, a definition that two industry sources said could also hit some commercial data centers at Chinese tech giants.

Companies around the world began to wrestle with the latest U.S. action, with shares of semiconductor manufacturing equipment makers falling. The Semiconductor Industry Association, which represents chipmakers, said it was studying the regulations and urged the United States to "implement the rules in a targeted way - and in collaboration with international partners - to help level the playing field."