US to unveil more chip restrictions on China, but may exempt key firms

The Biden administration plans to introduce new restrictions on exporting semiconductor manufacturing equipment to China, but key companies including ASML and Tokyo Electron could be exempt, Reuters reports.

The latest measure aims to continue limiting China’s access to critical technology while preserving trade relations with key US allies, including Japan, the Netherlands, and South Korea.

Companies likely to be affected by the new restrictions include those from Israel, Taiwan, Singapore, and Malaysia.

Any exemption would be a relief for the industry, as compliance with export restrictions presents a complex challenge. Many impacted companies are significant contributors to their respective economies, and China is their major market.

“On one hand, they have to remain loyal to the US government, but at the same time, they take a revenue hit by not exporting to China,” said Neil Shah, partner and co-founder at Counterpoint Research. “On the other hand, many semiconductor companies, from equipment manufacturers to fab operators to chipmakers, used to derive 25-45% of their revenue from China, given the country’s sheer scale and ambitions.”

ASML, the world’s leading supplier of semiconductor manufacturing equipment, had its former CEO reportedly say that he had attempted to prevent the tightening of export restrictions.

Impact on supply chain

The exemption for ASML and Tokyo Electron would allow Chinese manufacturers to access critical lithography and etching equipment, maintaining their semiconductor production capabilities.

Analysts point out that this could lead to increased global competition and spur innovation among the exempted countries, benefiting the semiconductor ecosystem in the US and its allies.

“US tech companies may benefit from a more stable supply chain, as the continued supply of advanced equipment to Chinese manufacturers could prevent disruptions that might arise from a complete embargo,” said Rani Ratna, senior research manager at IDC. “This is an important strategy for the US to maintain a competitive edge in advanced technology development, especially in AI and Supercomputing applications, where semiconductor performance is critical. Winning the AI and AGI race is more important than ever, and US companies aim to lead this race, with this strategy providing short-term benefits.”

The move is also expected to benefit the companies financially. ASML shares jumped following news of the possible exemption.

“The positive impact of this exemption would be significant for the earnings of the respective companies, and even more so for China,” Shah said. “Including China back in the market would allow these companies to benefit from increased scale, meaning they wouldn’t need to raise their prices to maintain scalability.”

Reasons for caution

However, analysts caution that the exact details of the rule are still in draft form and may change before official publication. More importantly, given the geopolitical situation, the possibility of additional restrictions later cannot be dismissed.

“The US government may still impose additional limitations using the Foreign Direct Product Rule (FDPR), potentially restricting the sale of certain advanced tools to China,” said Charlie Dai, VP and principal analyst at Forrester. “On one hand, this will further hinder China’s pace of innovation, causing collateral damage to the global chipset supply chain and eventually affecting customers worldwide. On the other hand, China will likely accelerate its investment in chipset fabrication to achieve technology self-reliance.”

In response to US sanctions, China has launched a massive state-backed semiconductor fund valued at $47 billion (344 billion yuan) to strengthen its chip industry. Chinese tech giant Huawei has become a key player in advancing local chip production and development.