Joe Biden Administration Announces Final Restrictions on Expansion in China by Semiconductor Companies

The administration of US President Joe Biden on Friday, September 22, announced the final restrictions on the capabilities of semiconductor companies to operate in China.

The American authorities reported that the new regime of state control in the technology sector will be required to comply with those firms that receive federal funds for the construction of factories in the United States.

In the foreseeable future, the US Department of Commerce will provide funding for more than $ 100 billion to implement measures to stimulate the development of chip production in the country. Also, material support is a solution within the framework of the American strategy to curb the growth opportunities of China’s technological potential.

The Chips Program Office will provide $39 billion in grants to microcircuit manufacturers. The agency will allocate another $75 billion in loans and loan guarantees. Those companies that receive these funds will be forced to comply with the obligation that they will not take any actions on their part to significantly increase production volumes and expand plant areas in China. The American authorities have identified the scale of business expansion in an Asian country that is unacceptable for firms that have received state support. The increase in production volumes in China should not exceed 5% of the current level for manufacturers of advanced chips. For companies that work with older technologies, including 28-nanometer microcircuits and more mature ones, the limit was set at 10%.

In a statement released by the United States Secretary of Commerce Gina Raimondo, it is indicated that the Chips for America initiative, characterized as a measure within the framework of efforts to ensure the protection of the country, will ensure that companies receiving government funding will not harm American security. The statement also notes that the authorities continue to coordinate their actions with allies and partners to strengthen global supply chains. It is emphasized separately that these efforts, among other things, contribute to ensuring collective security.

After the announcement of the new restrictive measures, the US Department of Commerce lifted stricter requirements for companies operating in China. The currently canceled state control regime provided for a spending limit in the framework of investing in Beijing’s manufacturing facilities at the level of $100,000. The action of this measure effectively deprived companies producing chips more advanced than 28-nanometer microcircuits of access to financing from the American authorities. This provision was one of the points of the Chip Law.

The media, citing a source who provided information on the rights of anonymity, report that from now on the concept of significant investments will be determined in the commercial environment, and not within the framework of legislative activity.

Changes in the state regulation of the scale of activities of companies receiving financial support from the American authorities, in China occurred after the Information Technology Industry Council, representing, among others, the interests of Intel, Taiwan Semiconductor Manufacturing, and Samsung Electronics, declared categorical disagreement with the aforementioned restriction of investment at the level of 100 thousand dollars.

The US Department of Commerce has also expanded the final rule to reduce the scale of construction of chip manufacturing plants in China. This measure was an addition to the original standards, which concerned only assembly lines. A representative of the Ministry of Commerce, referred to by the media, said that this decision is aimed at ensuring national security. The official noted that the introduction of changes to the regulatory regime of American companies in China is based on the understanding that production capacity as an identifier of output volumes is an unstable indicator that can vary almost every month.

The US Department of Commerce stated that the designated limits of investment activity are intended to account for even minor transactions to expand the production base. At the same time, the agency noted that American companies still have the opportunity to maintain an acceptable condition of existing plants through equipment modernization.

The new decision of the American authorities, adopted as part of the implementation of the strategy to contain China’s technological potential, faced a portion of negative criticism. There is an opinion in the US expert community that the fact that there are opportunities to increase production capacities in an Asian country by companies receiving federal funding may become a factor in strengthening Beijing’s position in the economic and technological confrontation with Washington.

Dmitri Alperovitch, chairman of Silverado Policy Accelerator, says that as a result of the new investment control measure, firms that receive grants are deprived of motivation to expand activities in the United States since they still have opportunities to develop their Chinese business.

The US Department of Commerce has also published a list of chips that are classified in terms of their critical importance for national security. Depending on the position in this conditional technological hierarchy, the degree of strictness of restrictions on microcircuits is determined. Also, this list equated the production of wafers to semiconductor manufacturing activities.

The new measures of the American authorities provide for the possibility of conducting some joint research and licensing activities with China.

The US Department of Commerce also announced that there is a mechanism for returning the entire amount of the federal grant if the company that received public funds violates the restrictions.

New measures to curb China’s technological potential are likely to exacerbate tensions between Beijing and Washington. The United States has restricted the access of companies from the mentioned Asian country to advanced chips. This decision was explained by concerns that Beijing could use next-generation technologies to enhance its military capabilities. China has also taken measures in response to this. For example, in the summer Beijing restricted the export of germanium and gallium used in manufacturing activities in the technology industry. China produces more than half of the world’s volume of these minerals. Some experts believe that this measure will backfire against Beijing since germanium and gallium can be replaced.

The regime of restrictions on China established by Washington has faced a serious challenge. In the new Huawei Mate 60 Pro smartphone, a processor with integrated advanced 7-nanometer technology was discovered, which is a fact that makes us doubt the effectiveness of American measures. At the same time, the Chinese manufacturer’s new device testifies to Beijing’s success in creating its ecosystem of chips.

U.S. Commerce Secretary said there is currently no confirmation that Huawei and other Chinese companies can establish a large-scale assembly of smartphones with advanced microcircuits.

The prospects for the development of relations between Beijing and Washington, based on the current state of affairs, are not positive and indicate the maximum likelihood of further escalation of tension.

State Department spokesman Matthew Miller said this week that during diplomatic contacts with China, the United States signaled its intention to always protect its national security interests, but at the same time stressed that an open dialogue is necessary to preserve the stability of the situation in the area of interstate relations.