US Tightens Curbs on China’s Access to AI Memory and Chips Tools

The Department of Commerce slapped additional curbs on the sale of high-bandwidth memory and chipmaking gear, including that produced by US firms at foreign facilities. It also blacklisted 140 more Chinese entities that it accused of acting on Beijing’s behalf, though it didn’t name them in an initial statement.

The long-in-development rules likely fell short of earlier proposals, Bloomberg News reported last week. That led to a widespread rally among semiconductor supply chain players from Tokyo Electron Ltd. in Asia to ASML Holding NV in Europe. The administration’s goal, building on years of evolving trade restrictions, is to slow China’s domestic development of advanced semiconductors and artificial intelligence systems that may help its military. The new sanctions and Entity List additions will be full detailed later on Monday, according to a US official.

The US “will restrict the PRC’s ability to produce technologies key to its military modernization or repression of human rights,” the Bureau of Industry and Security said in a statement. It expanded the Entity List to include “semiconductor fabs, tool companies, and investment companies that are acting at the behest of Beijing to further the PRC’s advanced chip goals.”

Biden officials debated the best approach and negotiated with foreign counterparts for the better part of a year. Major chip companies — including US gear makers Lam Research, Applied Materials Inc. and KLA as well as rivals Tokyo Electron and ASML — spent months lobbying their respective governments, urging an approach that preserves what each sees as fair access to the lucrative China market.

The controls unveiled Monday impose restrictions on the sale to China of two dozen types of manufacturing equipment and three software tools, with exemptions for countries that have the capability of imposing such controls themselves, according to a senior administration official. The idea, the official said, is to create a pathway for those countries — like Japan and the Netherlands — to enact comparable curbs. Neither Tokyo nor The Hague has publicly said they will do so.

The scope of the measures is “a near-term positive relief to investor concerns of escalating export controls,” Citi analyst Kevin Chen wrote last week. “Still, there could be future restrictions under the Trump administration next year.”

The rules do capture the foreign facilities of US companies, using a provision known as the foreign direct product rule, or FDPR. That authority allows Washington to control goods made overseas that use even the tiniest amount of US technology.

The use of FDPR, even with exemptions, is an effort to prevent US toolmakers from avoiding trade restrictions by locating their manufacturing in other countries. A recent report from the Center for Strategic and International Studies, a Washington-based think tank, found that US gear suppliers have increasingly exported products to China from non-US countries since 2016, and especially since 2019.

“This action is the culmination of the Biden-Harris Administration’s targeted approach, in concert with our allies and partners, to impair the PRC’s ability to indigenize the production of advanced technologies that pose a risk to our national security,” Secretary of Commerce Gina Raimondo said in a statement. “No Administration has been tougher in strategically addressing China’s military modernization through export controls.”

The new controls restrict the sale of high-bandwidth memory chips — essential AI components that handle data — and are in addition to existing curbs affecting advanced logic chips, which serve as the brains of devices. The memory rules apply to HBM2 and more advanced chips, a senior administration official said, and use FDPR to control both US and foreign firms. The global leader in providing HBM chips is South Korea’s SK Hynix Inc., followed by Idaho-based Micron Technology Inc. and Samsung Electronics Co.

There are exemptions to the rule, the official said, that allow Western companies to package HBM2 chips in China. Those exemptions are limited to packaging activities that present low risk of technology being diverted to Chinese firms, according to the official.