Global Chip Companies Are Beginning To Isolate China After US Sanctions

The Chip Cold War is taking a new turn. 

Ahead of the 20th National Congress of the Chinese Communist Party (CCP), President Xi Jinping has another sector worry about after real estate; the chip sector.

After the sanctions announced by the White House last week, China’s chip companies took a hammering on the stock market, losing as much as $8.6 billion in market value. 

Over the weekend, Naura Technology Group, a leading domestic chip equipment producer, closed 10 per cent down.

Hwatsing Technology group was down by more than 17 per cent. AMEC or Advanced Micro-Fabrication Equipment (AMEC) was down by almost 20 per cent. Anji Microelectronics, a group focussed on chipmaking chemicals, was down 20 per cent. 

Hangzhou Changchuan Technology Group was also 20 per cent down, indicating the bearish sentiments following the sanctions. Semiconductor Manufacturing International Corporation, China’s crowning jewel in the semiconductor industry lost 4 per cent, Hua Hong Semiconductor lost 9.4 per cent of its value and Shanghai Fudan Microelectronics was down by over 20 per cent.

Now, the companies in the West are taking note of the sanctions and beginning to isolate China.

According to a report in the Financial Times, Lam Research, Applied Materials, and KLA Corporation, critical players in the semiconductor production process, have halted their sales and other supplies to China. 

ASML, engaged in chipmaking equipment, has told its staff in the United States to halt their trade with Chinese customers as they study the sanctions.

LAM Research, as per the report, has started pulling out support staff from Chinese chipmaking companies including the YMTC which was added to the unverified trade list along with 30 other companies. 

LAM Research has also suspended all presale negotiations with its Chinese customers. Similarly, Applied Materials and KLA too suspended their services to Chinese manufacturers producing advanced chips.

ASML, in a message to its entire staff, including non-residents in the US, asked to distance themselves from providing any services to fabs in China. 

The sanctions, in the long run, will also hurt foreign chipmakers working in China.

While in the short-term, they can get approvals and authorisations by seeking permission from the Biden administration, as TSMC has done for one of its fabs, the White House would want them to shift away from China, thus aligning with the objectives of the CHIPS and Science Act. 

The White House, since the ushering of the CHIPS and Science Act, has been upping the ante against China.

The $280 billion CHIPS and Science legislation comes with $52 billion for the semiconductor industry in America and also ushers $200 billion in scientific research in artificial intelligence, quantum computing, and other relevant technologies. 

The $52 billion CHIPS funding subsidises companies building fabs or production plants within the United States. Also, it sets aside billions of dollars for building a semiconductor ecosystem with elaborate research and development facilities and a thriving workforce. Companies building fabs will also be eligible for tax credits.

Also Read: US-China Tensions: CHIPS Act And Semiconductor Diplomacy