US "Low-spec AI chips also banned from export to China"... Semiconductor stocks plunge on additional measures (Comprehensive)

The Joe Biden administration in the United States has significantly strengthened semiconductor export controls against China. Not only were low-specification artificial intelligence (AI) chips added to the list of restricted items, but exports to overseas subsidiaries of Chinese headquarters and countries subject to arms embargoes were also controlled, effectively blocking China’s avenues to circumvent existing sanctions.

[Image source=Reuters Yonhap News]

Export Ban on Low-Spec AI Chips to China

On the 17th (local time), the U.S. Department of Commerce announced additional semiconductor export control measures against China. This comes one year after restrictions were imposed last October on the export of advanced semiconductor equipment and AI chips using U.S. technology to China, with the new measures further tightening those controls. Commerce Secretary Gina Raimondo stated, "Our goal is to limit China’s access to advanced semiconductors that can drive AI and sophisticated computing innovation," adding, "AI chips are critically important for China’s military applications."

The new export controls focus on closing the "loopholes" that China has used to circumvent existing sanctions and acquire U.S. semiconductors. First, the Commerce Department added a "performance density" criterion for AI chips under the new rules. This means that chips with reduced performance, which were previously used to bypass regulations for exports to China, are now included in the control list. After the U.S. government banned exports of cutting-edge AI semiconductors to China last year, Nvidia created and sold lower-performance versions of graphics processing units (GPUs) for the Chinese market, such as the ‘A800’ and ‘H800’. Alibaba Group and Baidu are among the prominent Chinese companies using Nvidia’s low-performance AI chips.

Additionally, the Commerce Department decided to ban semiconductor exports to companies whose parent companies are located in China, Macau, or countries subject to U.S. arms embargoes, regardless of the location of the subsidiary. A separate license is required to sell semiconductor equipment to countries under arms embargo. The list of embargoed countries includes 21 nations such as Afghanistan, Armenia, and Azerbaijan. Secretary Raimondo emphasized, "Chips used in consumer products like smartphones, laptops, and gaming devices do not require export licenses," and added, "Export controls are intended to protect technologies related to national security and human rights."

Focus on Blocking China’s Sanctions Evasion... U.S.-China Tensions Likely to Resurface

The background to the U.S. government’s announcement of additional export controls after about a year is the assessment that last year’s regulations alone were insufficient to curb China’s technological rise, which threatens U.S. security. A senior administration official said in a background briefing the day before that the U.S. government had identified numerous attempts by China to circumvent existing sanctions, and recent breakthroughs in generative AI and other technologies have provided greater insight into the development and use of large language models. Some analysts also suggest that the recent launch of Huawei’s new smartphone ‘Mate 60 Pro,’ equipped with a 7nm (nanometer, one billionth of a meter) process chip, despite U.S. advanced technology sanctions, influenced the decision. Secretary Raimondo described this as "incredibly concerning."

The Commerce Department plans to update these measures annually to address any loopholes in export controls. On the same day, the department also announced the inclusion of Chinese semiconductor design companies Moors Thread and Biren on the blacklist.

This export control announcement is particularly notable as it comes ahead of an expected face-to-face meeting between President Joe Biden and Chinese President Xi Jinping at the Asia-Pacific Economic Cooperation (APEC) summit in November. Following China’s earlier regulations targeting Micron, semiconductors are once again emerging as a flashpoint in U.S.-China relations. The tensions between the two countries, which had appeared to ease somewhat with visits by U.S. Secretary of State Antony Blinken and others to China earlier this year, may escalate again.

Julian Evans-Pritchard, head of China economics at Capital Economics, recently noted in an investor memo that "China’s technological capabilities in developing large-scale AI models will ultimately be hindered by U.S. export controls," and analyzed that "AI has the potential to reshape productivity over the next 20 years, which could have broader impacts on the Chinese economy."

No Direct Impact on Korean Companies... Stock Prices of Nvidia, Broadcom, etc. Decline

The Semiconductor Industry Association (SIA), which includes companies like Intel and Nvidia, immediately opposed the measures. The new controls effectively draw a line, telling U.S. semiconductor companies to give up on circumventing exports to China. The SIA stated, "We recognize the need to protect national security," but argued, "Overly broad and unilateral controls do not enhance national security and risk harming the U.S. semiconductor ecosystem."

However, Korean companies that do not produce AI chips are expected to be unaffected directly by the new measures. Recently, Korean firms have received indefinite exemptions from U.S. sanctions under the "Verified End User (VEU)" framework, allowing the import of U.S. semiconductor equipment into Chinese factories.

On the day of the announcement, semiconductor-related stocks declined on the New York Stock Exchange. Nvidia, a leading AI semiconductor stock, saw its share price drop by about 4% compared to the previous session. Broadcom, Intel, and others also fell by more than 1%. Nvidia relies on the Chinese market for about 20% of its total sales.

This content was produced with the assistance of AI translation services.