As is usual in such cases, the ‘sanctions’ the US has imposed in China are in many ways little more than gloried make-work projects meant to ‘level the playing field’ by controlling products the US does not or can not produce.

Photo: US sanctions will make China’s goal of chip self-reliance much more challenging, say analysts. Photo: Shutterstock

08 December 2022 | James Porteous | Clipper Media News

Tech war: China’s embattled semiconductor sector sees first signs of relief from US sanctions

07 December 2022 | Che Pan in Beijing and Ann Cao in Shanghai |

China’s embattled semiconductor industry is seeing some signs of relief from US export restrictions, a development that may temper further escalation of the tech war between the world’s two largest economies, even as Washington maintains its overall intent to curb Beijing’s chip ambitions.

The US Commerce Department’s Bureau of Industry and Security (BIS) has refrained from adding 128 Chinese entities to a trade sanction list, including any of the latest batch of 31 added to a watch list on October 7. The entities were given 60 days to prove they were not supplying products to the Chinese military.

The situation has provided some breathing room for Chinese chips firms such as Yangtze Memory Technologies Co (YMTC), the country’s top NAND flash memory maker.

Alan Estevez, Under Secretary of Commerce for Industry and Security, declined to provide specific information on the 31 Chinese entities at an event in Washington on Tuesday, but he did say the US was “seeing better behaviour”.

The comments partly confirm earlier South China Morning Post reports that found many Chinese companies on the Unverified List, including a subsidiary of chip tool maker Naura Technology Group, have been conducting end-use checks in cooperation with US government officials via China’s Ministry of Commerce.

The Post also reported that a BIS official in Beijing has plans to visit Wuhan, where three of the listed entities – including YMTC – are based.

YMTC declined to comment on Wednesday.

Bloomberg also reported this week that China has started cooperating with US efforts to ensure American technology isn’t routed to China’s military, and that China’s commerce ministry is helping local companies work through the verification process with the US.

China’s Ministry of Commerce did not immediately reply to a request for comment.

It would be a “major benefit” for China’s semiconductor industry if the companies can be removed from the Unverified List through end-use checks, because it means they are not automatically added to Washington’s Entity List, according to Wang Lifu, an analyst at Shanghai-based chip industry consultancy ICWise.

Companies on the Entity List must apply for a special license to purchase US products and services, which in the case of YMTC would mean losing access to key chip making tools, materials and components.

“If [YMTC] stays off the [Entity] list … it can at least maintain the operation of some existing production lines, so the company can survive,” Wang said.

An aerial view of YMTC’s memory chip production facility. Photo: Handout

However, under separate export restrictions issued on October 7, YMTC cannot use US technology to produce NAND flash memory chips with 128 layers or more.

Separately, Reuters reported on Wednesday that US senators scaled back a proposal that would place new curbs on the use of Chinese-made chips by the US government and its contractors.

While the initial draft required US federal agencies and their contractors to stop using chips manufactured by China’s Semiconductor Manufacturing International Corp and YMTC, the final version does not ban contractors from “using” such chips, and pushes the compliance deadline back to five years from the two-year implementation deadline included in the first version.

The tactical relief, however, will not translate into a broader relaxation of US restrictions on China’s access to advanced chipmaking technologies, analysts said.

While China could still make progress with existing tools, “it will be much more complicated and expensive” to move into advanced chip making, Davuluri added.

Separately, the US is seeing substantial progress in its efforts to bring semiconductor production back to American soil.

Taiwan Semiconductor Manufacturing Co, the world’s biggest contract maker of chips, said on Tuesday it would more than triple its planned investment at its new Arizona plant to US$40 billion.