In October 2022, the U.S. government began implementing modified export controls that have further restricted China’s ability to purchase advanced semiconductors and chipmaking equipment. Since then, China’s access to advanced chips has continued to tighten with the expansion of the U.S. Department of Commerce’s Entity List. The Entity List imposes additional licensing requirements for exports to sanctioned companies under the Export Administration Regulations (EAR). Additionally, advanced chipmakers in China could soon find themselves cut off from Dutch and Japanese chipmaking tools and maintenance services due to a joint agreement between these countries and the U.S.
U.S. Entity List restricts advanced chip exports to more Chinese technology companies
On March 2, the U.S. Department of Commerce added 28 Chinese entities including semiconductor and electronics manufacturers to its EAR Entity List due to national security and human rights concerns, effectively restricting their access to the most advanced kinds of semiconductor chips. One notable company that has been added to the Entity List due to their ties with the Chinese military is Chinese chip design firm Loongson Technology Co., Ltd. Loongson is one of China’s main advanced chip design companies and its inclusion on the Entity List will likely limit the company’s ability to obtain chip design software from American firms, further hampering Chinese efforts to develop chip architectures that are separate from the West.
Another notable electronics firm added to the list for aiding the Chinese military is Inspur Group Co. Ltd, a major Shenzhen-based manufacturer of data centers, servers, and cloud computing platforms. Inspur relies on advanced semiconductors imported from U.S. chip design companies Nvidia and Advanced Micro Devices (AMD) to build its data centers and both American companies are seeking clarification from the Department of Commerce over whether they must halt sales to Inspur and its subsidiaries until they can obtain export licenses. Inspur’s inclusion on the Entity List has caused the group’s shares to plummet around 20% on the Shenzhen stock exchange over fears that the company could lose access to the advanced American chips.
The new total number of Chinese entities on the Department of Commerce’s Entity List is just around 600. More than 190 entities from China have been added to the list since January 2021 following a sharp rise in the usage of the EAR during the Trump Administration, which saw more than 280 entities added to the EAR Entity List from 2017-2020. This indicates that the EAR list will likely remain one of the main tools used by the U.S. government to restrict Chinese companies of concern from accessing advanced chips and chipmaking technology.
Japan and the Netherlands join U.S. efforts to curb exports of chipmaking equipment to China
In addition to expanding the EAR Entity List, the U.S. is also further limiting China’s access to advanced semiconductors by restricting its ability to purchase advanced chipmaking equipment on the international market. In late January, the U.S., Japan, and the Netherlands indicated that they had reached an agreement to further curb exports of advanced chipmaking equipment to China. This was confirmed on March 8 when the Dutch government revealed that the Netherlands would proceed to introduce export controls on the sale of advanced chipmaking tools to China before the summer of 2023.
The Netherlands is home to the world’s largest advanced chipmaking equipment manufacturer, ASML NV, and the planned sanctions could expand the scope of existing trade restrictions beyond the company’s most advanced extreme (EUV) lithography tools to include deep immersion (DUV) lithography equipment that is currently approved for export to China. Additionally, Dutch authorities are also deciding on whether to also include a ban on the maintenance and servicing of advanced chip making equipment from ASML that is already in China. This would be similar to restrictions imposed by the U.S. in October 2022 which has barred U.S. chipmakers from providing support at Chinese advanced fabrication facilities.
For its part, Japan has also agreed to curb chip exports to China in principle. However, the country has refrained from announcing any decision on chip export bans publicly and it is unclear what actions it may take to restrict China’s access to its chip-making equipment.