In the fight for technological supremacy in the semiconductor industry, US President Biden is throwing down a punch: he is threatening US citizens with the withdrawal of their citizenship if they participate in chip production in China. That could catapult Chinese industry out of business.
At the beginning of October, US President Joe Biden imposed far-reaching export restrictions on China’s chip industry. This not only denies her access to certain semiconductor chips that are produced worldwide with US machines. Rather, US nationals are no longer allowed to support development and production in Chinese semiconductor plants: Violations can even result in US citizenship being revoked.
“This is what obliteration looks like. China’s semiconductor industry was reduced to zero overnight. Complete collapse,” Jordan Schneider of the consulting firm Rhodium Group quoted the tweet from a Chinese tech influencer and entrepreneur. Jan-Hinnerik Mohr, semiconductor expert at the consulting firm Boston Consulting Group, does not go that far in an interview with ntv.de. But he also sees a new level of escalation in the far-reaching export restrictions. “The US ban is not the downfall of the Chinese semiconductor industry, but it is a very big setback for the industry,” says Mohr.
China has invested a lot of money in the manufacture of semiconductors in recent years, but has not been successful. Attempts to poach skilled workers from Taiwan, for example, have had little success. “The big breakthrough didn’t materialize.” Mohr cannot quantify how many American specialists are affected by the ban. However, it is not so much about the quantity, but about quality in the sense of special know-how.
“Highly qualified experts are affected by the US ban, in particular employees of American manufacturers of semiconductor production machines such as KLA, Lam Research and Applied.” They are all based in China and are of enormous importance. “The machines are more complex than a space shuttle and need constant maintenance,” says Mohr. If the skilled workers have to leave the country, it does massive damage.
The goal is not just technology leadership
Antonia Hmaidi, an analyst at the Mercator Institute for China Studies, takes a similar view. “International talents are one of the growth drivers of the Chinese chip industry,” she tells ntv.de. Even before the sanctions, China had problems finding suitable specialists, not least because of its strict zero-Covid policy.
According to experts, the sanctions could set the Chinese chip industry back by years. “There is an incredible amount of know-how in the semiconductor industry, which is difficult to copy,” says Mohr. He estimates that China could be left behind by five to ten years. And that’s what Washington is all about. “The American leadership has made it clear that the goal is not just technological leadership. Rather, China should be left behind as far as possible,” agrees Hmaidi.
The USA is not only concerned with technological progress, but also with security concerns. American chips are not only widely used in consumer applications, they are also used in the military field – for example, to search satellite images for weapons or bases and to filter digital communications for intelligence gathering. The US Department of Commerce said it wanted to “prevent advanced technology from falling into the wrong hands.”
The US semiconductor association Semiconductor Industry Association welcomes the measures. The new rules should protect innovation in the US “from China’s predatory actions,” according to a statement. Other countries should also participate in the US regulations in order to increase the impact of the measures.
Government invites chip industry to crisis meetings
According to analysts, the measures will derail China’s growth plans and potentially slow innovation. Alarm bells are ringing in Beijing. In order to be able to take countermeasures in time, the Chinese government has already rounded up its chip industry for a crisis meeting at which the effects of the US ban were discussed, reports the Bloomberg news agency. The Chinese memory chip supplier YMTC, among others, was involved in the talks behind closed doors.
According to Mohr, Europe need not fear retaliation. “The Chinese can hardly defend themselves against the US ban and have little opportunity for immediate countermeasures.” The dependency in the area is simply too great. However, other assumptions are also circulating among experts: According to this, the US export restrictions could also prompt Chinese chip manufacturers to find new creative solutions and go their own way. Even if these will not have commercial success in the long term.
“The tech disconnect could be China’s Sputnik innovation moment, forcing the country to rely on itself,” economists at Citigroup said, comparing the sweeping sanctions to surges in spending and research in the United States the launch of the world’s first satellite by the Soviet Union.