Latest Round of U.S. Restrictions Unsettles Beijing in Ongoing U.S.-China Chip Conflict

19 Oct, 2023

Latest Round of U.S. Restrictions Unsettles Beijing in Ongoing U.S.-China Chip Conflict

China has issued a strong response to the Biden administration's decision to impose fresh restrictions on the export of advanced chips, further intensifying the ongoing U.S.-China technology trade conflict.

The Chinese foreign ministry asserted that these restrictions "contravene the principles of a market economy and fair competition." The measures not only target advanced chips but also chipmaking tools, including products from the market leader Nvidia.

This move is widely perceived as an effort to address certain regulatory gaps that became evident after the initial set of chip controls introduced in October.

The United States has stated that these measures are designed to prevent China from acquiring cutting-edge technologies that could enhance its military capabilities, particularly in the field of artificial intelligence (AI). The Biden administration, however, maintains that its intent is not to harm China economically. In response, Beijing's foreign ministry characterizes the move as "forced de-coupling for political purposes."

Following this announcement, Chinese stock markets featuring companies in the chip industry have experienced modest declines. The CSI Semiconductor Index dipped by 1.4% on Wednesday, and the STAR Chip Index lost 1.2%. An index tracking China's AI firms also closed 1.8% lower.

U.S. chip stocks have not been immune to the impact, affecting American companies such as Advanced Micro Devices and Intel. Nvidia, in particular, revealed that the new export restrictions will impede the sale of two high-end artificial intelligence chips intended for the Chinese market - the A800 and H800. Additionally, one of its gaming chips will also face restrictions.

Although these restrictions impact other chip manufacturers, analysts anticipate that Nvidia will be disproportionately affected since China contributes up to 25% of its data center chip sales revenues. Nvidia's shares, considered star stocks, saw a decline of up to 4.7% in response to this development.

The Semiconductor Industry Association, representing 99% of the U.S. semiconductor industry by revenue, criticized the new measures as being "overly broad" and potentially damaging to the U.S. semiconductor ecosystem, without providing a significant boost to national security. They argue that these measures may encourage foreign customers to seek chip technology alternatives elsewhere.

In a retaliatory move two months ago, China imposed restrictions on the exports of two critical materials - gallium and germanium, both integral to the semiconductor industry. China plays a dominant role in the global supply chain for these materials, producing 80% of the world's gallium and 60% of germanium, as reported by the Critical Raw Materials Alliance (CRMA) industry body. These materials, categorized as "minor metals," are often by-products of other industrial processes and are not naturally found in isolation.

Notably, aside from the United States, both Japan and the Netherlands, home to the prominent chip equipment manufacturer ASML, have also imposed export restrictions on chip technology to China. The ongoing back-and-forth actions between the world's two largest economies have raised concerns over the emergence of "resource nationalism," where governments hoard vital materials to exert influence over other nations.