On September 6, the U.S. Department of Commerce announced a new set of export controls targeting China’s advanced semiconductor sector. The new rules introduce additional license requirements for companies looking to export quantum technology and software, gate-All-Around Field-Effect Transistor (GAAFET) technology, and additive manufacturing equipment used to produce quantum computer materials. The rules also introduce tighter licensing requirements for manufacturing equipment used to produce metal or metal alloy components that can be used in military devices.
The new rules apply to worldwide exports of all the aforementioned technologies and equipment but also include exemptions for U.S. allies including the Netherlands and Japan that have been introducing their own chip controls against China. The exemptions mean that the latest restrictions do not apply to major chip equipment manufacturers like ASML and Tokyo Electron and are less severe than a proposed plan by the U.S. earlier in the summer to invoke the foreign direct product rule (FDPR) to regulate the sale and servicing of all controlled chip products made by companies from allied nations.
The Biden administration’s decision to provide licence exemptions for some foreign chip companies appears to have encouraged more countries to tighten their own chip controls against China. For example, the Netherlands announced on September 6 that it would expand licensing requirements that would make it harder for ASML to sell its 1970i and 1980i deep immersion lithography tools to China. Japan also announced new financing rules in mid-August that require foreign investors to disclose investments in Japanese companies involved in the semiconductor, advanced electronics, and machine tool sectors. Lastly, Canada also recently expanded its own export control list in July to introduce licensing requirements for the sale of quantum computers and other advanced semiconductors to firms outside the United States.
The latest chip control expansion represents a win for the Biden administration, which has been pushing its allies to further harmonize chip restrictions with the U.S. That being said, other countries are likely to continue introducing chip restrictions at a slower pace than the U.S. would like due to economic concerns related to trade with China. For example, China has already threatened to suspend exports of critical metals used in the automotive sector if Japan introduces additional chip restrictions while the South Korean government has indicated that it would need economic incentives from the U.S. to impose further chip export controls.
Chinese companies increasingly targeted for military ties
In addition to chip controls, the U.S. government has also begun ramping up restrictions against Chinese companies that have been involved in the export of dual-use electronic and machinery components to Russia’s military. For example, Chinese entities comprised around a quarter of the roughly 400 companies added to the U.S. SDN sanctions list in late August for their ties to the Russian military while a further 42 Chinese companies and entities were also added to the BIS Entity List for the same reason. Suppliers that do business with firms in the entity list have to first obtain a license from the United States.
Notable affected companies from Hong Kong and mainland China on the Entity List include PCB and circuit designers 3-K Electronics Limited and Cloudmax Tech Co., Ltd. integrated circuit manufacturer DGT Technology (HK) Co., Ltd., and electronics manufacturer Eastech Electronics Limited. Chinese manufacturers also remain vulnerable to inclusion on other U.S. government lists including the Department of Defence’s 1260H list if they are found to have ties to the Chinese military. Some companies added to the list include LIDAR maker Hesai Group and Shanghai-based chip manufacturer Advanced Micro-Fabrication Equipment Inc., both of which have launched federal lawsuits claiming that the U.S. has failed to provide sufficient evidence of the firms’ ties to the Chinese military.
Chinese authorities also announced on August 16 that the country would start curbing the exports of antimony on national security grounds, continuing the country’s practice of restricting shipments of strategic minerals. China, which controls 48% of global antimony production, will limit exports of the mineral by requiring exporters to apply for licenses for dual-use items and technologies and will prohibit the export of gold-antimony smelting and separation technology. The export restriction is expected to tighten global antimony supplies amidst increased demand for the mineral from the renewables and military sector. Antimony is most commonly used to manufacture fire retardants, but the mineral is also used in the manufacture of solar cells, lead acid batteries, and hardening agents.
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