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The American and Chinese Semiconductor Industries Undergo Massive Shift

03/17/23 7 minute read

In recent years, the US government has continuously issued export restrictions prohibiting American firms from exporting semiconductor parts to Chinese firms without a license. And that won’t be changing with the Biden administration. In March of 2023, the administration further tightened restrictions on China by adding 37 Chinese companies to a trade blacklist, including a major cloud computing firm Inspur, which is the world’s third-largest supplier of servers used in data centers and a customer of chips from US companies. 

This trade blacklist was created only a few months after the US Department of Commerce’s Bureau of Industry and Security (BIS) issued export controls that are said to be among the toughest the United States has ever enacted. These restrictions imposed complex new controls that impacted advanced computing integrated circuits (ICs), computer commodities, semiconductor items and related manufacturing equipment, and supercomputers. They also imposed heightened knowledge standards and due diligence requirements for US businesses who want to export to China. In the wake of these various new export controls, suppliers of chip-making equipment have stalled any servicing of Chinese chip factories. 

How did we get here?

Semiconductors power most modern technology, from cars and smartphones to telecommunications equipment. Their design and manufacturing process is complex and dominated by a small number of firms in the United States, Taiwan, and Europe.

The Chinese government has spent decades investing in bolstering a domestic semiconductor industry. But under current Chinese President Xi Jinping, the Chinese Communist Party has made renewed efforts to create an independent semiconductor supply chain under the “Made in China 2025” plan. The plan aims for China, the world’s largest consumer of semiconductors, to produce 70 percent of its own semiconductors by 2025.

The Chinese government directly or indirectly holds shares in 13 percent of Chinese semiconductor firms, reflecting Beijing’s push toward self-reliance in the chipmaking industry. These investments primarily come from China’s State Council, but local governments across the country also own shares in semiconductor firms, indicating a nationwide drive to invest in a key industry.

In part due to US export controls limiting China’s access to US technologies, China has felt the pressure to develop a self-sufficient semiconductor supply chain in order to maintain its level of semiconductor consumption. The number of companies that have registered as semiconductor firms in China has increased by 700 percent since 2010, according to an analysis by the Financial Times.

Are the controls making an impact?

The tightening export controls combined with a decline in semiconductor sales has greatly impacted China’s tech sector, according to the South China Morning Post. The country’s exports and imports of chips have steeply fallen in the first two months of 2023; chip imports have decreased by 26.5 percent compared to a year prior, while chip exports have fallen 20.9 percent. 

China’s semiconductor industry is likely to take another hit. Japan and the Netherlands, which are also key countries in the chip supply chain, have reportedly agreed to impose similar restrictions on exports to China, though neither country has announced specific legislation.

What about the American semiconductor and chip industry?

Alongside export controls issued on China, the US government is attempting to encourage semiconductor manufacturing to move to the US through the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS and Science Act). 

>> Everything you need to know about the CHIPS and Science Act <<

The CHIPS Act invests $280 billion into the industry over the next ten years. About $200 billion is for scientific research and development. And roughly $52.7 billion is for semiconductor manufacturing and workforce development, with another $24 billion worth of tax credits for chip production. There is also $3 billion slated for programs aimed at leading-edge technology and wireless supply chains.

In March of 2023, the first round of applications for funding was made available to applicable companies. The selected funding recipients would then be prohibited from expanding semiconductor manufacturing in China and other countries determined to pose a national security threat to the United States. These restrictions will apply to funding recipients for 10 years from the date of funding. The CHIPS Act also outlines that these restrictions are subject to change if the Secretary of Commerce, in coordination with the Secretary of Defense and the Director of National Intelligence, finds that it would be wise to expand restrictions to other technologies.

How can you stay in compliance with new semiconductor restrictions?

If your business is receiving funding from the CHIPS and Science Act or you’re looking to stay in compliance with new export controls, you’ll need information on importers, exporters, and buyers of semiconductor technology in China. 

A commercial risk intelligence platform, such as Sayari Graph, leverages company records, trade data, and graph technology to pre-compute complex, cross-border business relationships. This comprehensive view of over 450 million companies and their relationships allows exporters to more effectively and efficiently spot risk associated with their partners and counterparties. If you’re looking to stay in lock step with regulators, BIS also relies on Sayari Graph data for regulating trade.

US regulators, including BIS, have additionally emphasized the risks of doing business with Chinese military-industrial complex companies and state owned enterprises (SOEs). While there is an explicit list of Chinese military end users (MEUs) to avoid, this list is non-exhaustive and the burden to ensure customers are not military end users falls on the exporter. For example, in the case of the Chinese spy balloon the New York Times was able to uncover ownership with Sayari Graph.

Sayari Graph can help enrich BIS MEU, NS-CMIC, Section 1260H, and other regulatory lists with complete subsidiaries, joint ventures, branches, trade partners, and affiliates. This allows exporters to quickly uncover hidden trade counterparty connections, including transshipment risk and proximity to designated entities. Additionally in Graph, users can upload counterparty lists for efficient bulk screening or identify the global presence of corporate entities using geospatial search.

To learn more about how to run supply chain investigations in China, watch our Masterclass to learn what you can uncover with Chinese public data.  

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