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China holds emergency talks with chip firms after US sanctions

It is unclear how Beijing will react to the new sanctions. (Representative)

China’s top technology overseer convened several emergency meetings with major semiconductor companies last week, seeking to assess damages from the Biden administration’s sweeping chip restrictions and support for the critical sector.

The Ministry of Industry and Information Technology has called executives from firms including Yangtze Memory Technologies Co and supercomputer specialist Donning Information Industry Co to closed-door meetings as Washington unveiled measures to curb China’s technological ambitions.

People familiar with the discussion said that MIIT officials appeared unsure of the way forward and that at times it seemed the chipmakers had as many questions as they could be answered. While he refrained from hinting about retaliatory measures, officials insisted that the domestic IT market would provide enough demand for affected companies to continue operations, the people said, asking to remain anonymous on a sensitive issue.

Many participants argued that the US sanctions collectively spelled doom for their industry, as well as China’s ambitions to link its economy to US technology. Yangtze Memory, one of China’s best hopes of engaging in cutting-edge chipmaking, warned MIIT that its future could be in jeopardy, according to one of the people.

AI chipmaker Biren is an example of how Chinese semiconductor startups rose from stardom to crisis in a matter of days. The chip designer was eyeing a $2.7 billion valuation and announced in August that it had released the first general-purpose graphics processing unit, “setting a new record in global computing power.”

But Biren had contracted with Taiwan Semiconductor Manufacturing Company to produce its chips using advanced 7-nanometer technology. Now TSMC may have to stop working with startups under Biden’s rules, and no company in China has the ability to change that.

Biren declined to comment on the discussion, but said in a statement that the company was operating normally, and determined that the sanctions would have no effect on his business after checking with lawyers. The ministry did not respond to a faxed request for comment. Yangtze Memory and Donning Information representatives did not respond to requests for comment.

US firms have withdrawn employees from promising firms, including top memory maker Yangtze, while non-US suppliers such as ASML Holding NV have halted support for local customers. China’s leading maker of supercomputers, Dawning Information, and its arm Hygon are scrambling to find alternatives to the American silicon they need to keep them going.

Hygon spokespersons did not immediately respond to an email seeking comment. But the company said in a filing last week that it is evaluating the long-term impact of the restrictions.

“Biden’s new chip export controls are a major blow to CCP’s science and technology ambitions,” Jordan Schneider, an analyst at Rhodium Group, wrote on Twitter, referring to the Communist Party.

It is unclear how Beijing will react to the new sanctions, the Biden administration’s most aggressive yet as it tries to prevent China from developing capabilities it sees as threatening.

Xi Jinping, in a landmark address over the weekend, pledged technological self-reliance in the fight with the US for technological supremacy – which many took as a sign that Beijing should renegotiate policy and financial support for sectors such as AI and chips. Will do China’s leader, however, refrained from directly addressing Washington’s latest moves or outlining new aid. Officials have not indicated whether they were considering retaliatory measures.

Earlier this month, the US Commerce Department unveiled sweeping rules that limit the sale of semiconductors and chip-making devices to Chinese customers, striking the foundation of the country’s efforts to build out its own chip industry. The US also added 31 organizations to its unverified list, including Yangtze memory and chip equipment maker Noura Technology Group Co, severely limiting their ability to purchase hardware from overseas.

Bernstein analysts, led by Mark Lee, wrote last week, “We find the newly announced sanctions well-thought-out and address many of the loopholes that prior sanctions failed to cover.” “China will not be able to advance in semiconductor technologies like before and probably has no choice but to focus on the mature part.”

The global chip industry, which relies on China as the world’s largest single consumer of semiconductors, is poised for some fashion retaliation from Beijing. US firm Lam Research Corp warned that its revenue could be halved in China – a market that produces about 30% of its total business. The ASML, however, suggested a “very limited” impact from export controls.

Local companies are meanwhile counting on solid support.

Many technology powerhouses in China depend on government-backed projects for development. The country’s massive wireless network construction brought huge profits for Huawei Technologies Co and ZTE Corp. Data center construction in the less developed western part of the country is set to benefit a range of server manufacturers, including Sugon and the Inspur Group. This year, Beijing ordered government agencies and state firms to replace foreign personal computers, potentially creating demand for 50 million Chinese-branded PCs, Bloomberg News has reported.

But depending on how widely Washington enacts the sanctions, the impact could extend beyond semiconductors and into industries relying on high-end computing, such as electric vehicles, aerospace and smartphones. Chip sector leaders from Intel Corp to TSMC have been sold out in recent days, stymied by rising uncertainty at a time when the world faces a potential recession.

According to a note by Fathom China, “When Beijing is caught with flat feet, its initial reaction is always slow.” “Ministers are not authorized to make decisions themselves, they need big bosses to make decisions. And right now, big bosses are busy with party congresses.”

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)


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