Navigating U.S. Sanctions Amid Asia's Rising Chip Ambitions
On August 9, 2023, President Joe Biden promulgated an Executive Order addressing U.S. investments in distinct national security technologies. Explicitly referencing the People's Republic of China, including its territories of Hong Kong and Macau, the order underscores their strategic advancements in critical technological domains integral to their military and intelligence operations.
By converging their civilian and defence sectors, these regions capitalise on state-of-the-art global technologies, targeting military superiority. The accelerated advancements in areas like semiconductors, quantum tech, and artificial intelligence heighten potential security concerns for the U.S. Such progress empowers these nations to craft advanced weaponry and decipher encrypted codes, thereby securing a strategic military advantage.
“The program complements the United States’ existing export control and inbound screening tools with a “small yard, high fence” approach to address the national security concerns for such sensitive technologies” announced by President Biden.
Specifically, it will prohibit certain investments in entities that engage in specific activities related to these technology areas that pose the most acute national security risks, and require notification for other sensitive investments.
Chip Wars - Across the Pacific
The global semiconductor landscape is undergoing rapid shifts, with the U.S. and China at its epicentre. As the U.S. tightens its grip on investment into China's prime tech sectors, Asia's ambition in the chip industry faces new challenges and opportunities.
In the high-tech corridors of Wuxi, a seismic revelation rippled across a recent semiconductor equipment conference. Gerald Yin, CEO of AMEC, unveiled an assertion that the U.S. harbours intentions to stymie China's chip industry, positioning it a significant five generations behind the cutting-edge. The assertion, made in front of a hall brimming with industry experts, brings the ongoing technological cold war between the two superpowers into sharp focus.
Decoding Washington’s Tech Playbook
Yin’s declaration offers a lens to decipher the escalating export restrictions. He suggests that the latest round of U.S. tech export controls, encompassing China-centric foundries, ranks as the most crippling since the U.S. commenced its series of sanctions against China's advanced tech entities in 2019. By Yin's count, the recent executive order targeting U.S. investments in China's semiconductor, AI, and quantum computing sectors, is Washington's "16th move" in this chess game.
Diving deeper into the intricacies, the rules levied in the preceding October have strategic contours. The objective? To bottleneck China's chip-making prowess – capping logic chips at the 14-nm threshold, DRAM chips at 18-nm, and 3D NAND memory at a precise 128 layers. The justifications presented by the U.S. revolve around national security apprehensions, underscored by potential militarization of advanced chips.
Republicans criticised the order for not being broader. Nikki Haley, one of the GOP presidential contenders, said it was “not even a half measure”.
“To stop funding China’s military, we have to stop all US investment in China’s critical technology and military companies, period,” she said.
The first official said the administration wanted to focus on the sectors that were most relevant to slowing China’s military modernisation and intelligence capabilities.
The Anatomy of China’s Chip Ambitions
Having navigated the U.S. chip equipment realm for two decades, with an illustrious stint at Applied Materials, Yin possesses an insider's view. He highlights a skewed landscape in China's semiconductor procurement — a mere 15% emanates from local sources. The dominant 85%, he underscores, is a tripartite import regime from the U.S., the Netherlands, and Japan. Yin's piercing observation points to this international collaboration: "This triangulation elucidates why the U.S. courted Japan and the Netherlands to thwart our ascent."
However, the narrative is layered. Attendees at the conference drew attention to China’s ongoing tech hurdles. Indigenous semiconductor businesses, while aspiring, languish behind global counterparts in market share and technological finesse. In niche tech spheres like lithography, China’s footprint is virtually non-existent on the global stage. This deficit, coupled with an increasingly hostile geopolitical climate, makes it arduous for Chinese enterprises to bridge the technological divide.
Political Crosshairs and Broader Implications
Beyond the industrial domain, the policy directive has spurred political discourses. Prominent Republican figure, Nikki Haley, derided the order's limited scope, pressing for a blanket cessation of U.S. investment in China's strategic tech and military ventures. From the administrative corridors, officials counter this narrative. Their focus? Key sectors instrumental in decelerating China's military and intelligence augmentation. They also voice concerns over private equity and venture capital entities, highlighting their potential role as conduits linking Chinese conglomerates with global tech stakeholders. "The essence lies in obstructing the intangible dividends," one official remarked, adding, "China isn't reliant on our financial reservoirs."
“To stop funding China’s military, we have to stop all US investment in China’s critical technology and military companies, period,” Nikki Haley - GOP presidential contenders
Amid this backdrop, a white press release from The Department of the Treasury adds another dimension. An Advanced Notice of Proposed Rulemaking (ANPRM) has been circulated, furnishing proposed terminologies to flesh out the program's ambit. This initiative, subject to public scrutiny and feedback, underscores the dual U.S. objective: safeguarding national security while championing open investments. The vision is lucid – deter nations with conflicting interests from leveraging U.S. investments in a cohort of pivotal technologies, which could fuel their military, intelligence, and cyber aspirations, jeopardising U.S. national security interests.
The ongoing technological rivalry between the U.S. and China is complex, characterised by strategic industrial planning, geopolitical considerations, and economic objectives. At its essence, it represents the broader challenge of establishing technological supremacy in the 21st century. As the competition intensifies, businesses should brace for increased market volatility, especially concerning the escalating demand for what many industry experts term as the "new oil" of the contemporary technological landscape.
