US Sanctions on the Chinese Semiconductor Sector

The newly Added US Sanctions on the Chinese Semiconductor Sector has a series of targeted updates to its export regulations concerning semiconductors and associated technologies with respect to China. Two of the nine new rules stand out, given the scale of both the short-term and long-term impact that they will cause.

Since the US Sanctions implementation on October 12, 2022, it has caused a wave of mass withdrawals of American workers, including the resignations of high-level management personnel, from Chinese semiconductor companies. There are restrictions on the US persons (including citizens, green card holders, and foreign nationals who live in the US) to support the development, or production, of ICs at China-based advanced semiconductor manufacturing fabs without a license.

American workers at Chinese semiconductor firms like Yangtze Memory Technologies Co. Ltd (YMTC), ChangXin Memory Technologies (CXMT), Shanghai Semiconductor R&D Center Jiading Factory, and Hangzhou HFC Semiconductor Corp. reportedly resigned one after another last week.

The US-born suppliers of chip equipment, including Applied Materials, KLA Corporation, and Lam Research, have stopped their corresponding services and support in China and withdrawn their US workers from China.

An estimated 43 American CEO level executives are employed by 16 semiconductor companies listed on the Chinese stock exchange. According to the Financial Times, 200 people with US passports are employed by Chinese semiconductor organizations.

Since the limitation is now in place, the US has forced individuals to make a choice: they must choose between their nationality and their profession. It is extremely probable that the Chinese government will use its influence to persuade these high-level Chinese Americans employed in the semiconductor business to remain. However, the short-term talent drains and disruption is inevitable.

At the same time, China has made numerous attempts to lure foreign semiconductor talent to help it establish its position in the industry, particularly in the field of advanced logic IC, which is essential to all future enabling technologies like artificial intelligence (AI), machine learning, autonomous driving, supercomputers, and more. Without a doubt, this ban is a major blow to China's advanced semiconductor sector, which is already struggling to be at the leading edge of the semiconductor industry.

In 2021 China spent $ 432 billion on imported microprocessors, equivalent to total expenditure on grain and crude oil imports. China’s own microprocessor industry now manufactures significant quantities of microprocessors at the less advanced production nodes, i.e., 24 nanometers upwards.

But China is still a long way from being able to produce microprocessors at the most advanced production nodes, now 5 and soon to be 3 nanometers. The production of these advanced nodes is dominated by two corporations and they are The Taiwan Semiconductor Manufacturing Corporation (TSMC) and South Korea’s Samsung.

S Mohini Ratna, Editor, VARINDIA