On Friday, the Biden Administration released a large set of export rules.
Shanghai: Shares of Chinese tech giants Alibaba Group (9988.HK) and Tencent (0700.HK) as well as chipmakers fell on Monday because investors were scared by new U.S. export control measures meant to slow Beijing’s technological and military advances.
On Friday, the Biden administration released a wide range of controls on exports, including a plan to stop China from getting certain semiconductors made anywhere in the world with U.S. equipment.
Some of the measures go into effect right away. Together, they could be the biggest change in U.S. policy toward selling technology to China since the 1990s.
Related: Asian stocks got hit hard by worries about the U.S.-China trade war and problems with the Fed.
Experts said that the new rules will have a wide range of effects, including making it harder for China to build up its own chip industry and make progress in commercial and government research on military weapons, artificial intelligence, data centres, and many other areas that use supercomputers and high-end chips.
The new rules also come at a time when the global chip industry is already facing major headwinds from falling demand for computers, smartphones, and other electronic devices after COVID and has warned of weak revenue.
They said that Chinese chipmakers are most likely to feel the effects right away.
Under the new rules, U.S. companies can’t give Chinese chipmakers equipment that can make relatively advanced chips, like logic chips with a size of 16 nanometers (nm) or less, DRAM chips with a size of 18 nm or less, or NAND chips with 28 layers or more, unless they first get a licence.
This will hurt China’s top contract chipmakers, Semiconductor Manufacturing International Corp. (SMIC) (0981.HK) and Hua Hong Semiconductor Ltd. (1347.HK), as well as Yangtze Memory Technologies Co., Ltd. (YMTC) and Changxin Memory Technologies, which are backed by the government (CXMT).
Analyst at AJ Bell Danni Hewson said, “The measures will hurt the Chinese chip industry. They will stop many growth plans and could slow down innovation in both the East and the West.”
“Over the next few days, there will be a lot of high-level meetings in boardrooms to talk about what U.S. export controls mean.”
Taiwan’s TSMC (2330.TW) controls most of the global contract chip market, but Chinese foundries control about 70% of the domestic market. This shows that Beijing is trying to make it easier for China to make its own chips.
Industry watchers say that YMTC and CXMT are China’s best bets for breaking into the global market for memory chips, competing head-to-head with top companies like Samsung Electronics (005930.KS) and Micron Technology (MU.O).
Analysts say that the new rules will make it hard for the two Chinese companies that make memory chips to do business.
In a research note, Gu Wenjun, who is in charge of research at the Shanghai-based consulting firm ICWise, said, “The progress of memory will be limited because there will be no chance to upgrade process equipment, no chance to increase production, and the market will be lost.”
Analysts say that if supplies of equipment for making high-end chips are cut off, it could have a ripple effect on making simpler chips.
Stewart Randall, who works for the Shanghai-based consulting firm Intralink and follows China’s semiconductor industry, said that the same equipment used to make 128-layer NAND chips can also make simpler 64-layer NAND chips.
On Saturday, Mao Ning, a spokesman for China’s foreign ministry, said that the move was an unfair use of trade measures that were meant to strengthen the United States’ “technological hegemony.”
U.S. toolmakers like KLA Corp (KLAC.O), Lam Research Corp (LRCX.O), and Applied Materials Inc. are now required to stop shipping to advanced logic chip factories that are wholly owned by China (AMAT.O).
China gets most of its advanced AI chips from companies like Nvidia Corp. (NVDA.O) and Advanced Micro Devices Inc. (AMD.O).
An analyst at Hargreaves Lansdown, Susannah Streeter, said, “This couldn’t have come at a worse time for Nvidia, which is already going through a very tough time due to supply chain problems and slowing demand for game consoles.”
supercomputers, data centres
The rules also say that China can’t ship a wide range of chips that can be used in supercomputers that can be used to make nuclear weapons and other weapons technologies.
Some experts in the field say that the ban could also affect the commercial data centres of China’s biggest tech companies. At 8:05 GMT, shares in Alibaba, an e-commerce company, and Tencent, a social media and gaming company that uses data centres a lot, fell by 3.5% and 2.8%, respectively.
China’s stock market went down on Monday, the first day of trading after the Golden Week holiday. This was because tech stocks fell sharply.
Related: U.S. aims to hobble the chip industry in China by imposing new export regulations
The CSIH30184 index of China’s semiconductor companies fell by almost 7%, and the STAR50 index of Shanghai’s tech-focused STAR Market fell by 4.5%.
SMIC fell 4.4%, NAURA Technology Group Co. (002371.SZ), which makes chip equipment, fell 10% by the end of the day, and Hua Hong Semiconductor fell 9.5%.
Shares of AI research company Sensetime (0020.HK) and surveillance equipment maker Dahua Technology (002236.SZ), which will lose access to chips made with U.S. technology, fell by 5.6% and 10%, respectively.
Monday was a holiday in South Korea, Japan, and Taiwan, so their stock markets were closed. This had little effect on tech stocks outside of China.
Analysts don’t think it will have much of an effect on TSMC, the world’s largest contract chipmaker, because most of its advanced chip orders come from U.S. companies like Apple (AAPL.O) and Qualcomm (QCOM.O), even though China brings in about 10-12% of its sales.
On Saturday, South Korea also thought that Samsung and SK Hynix’s (000660.KS) chip production in China would not be seriously affected by a lack of equipment.
