U.S. ratchets up sanctions to curtail China’s AI and military tech — no more HBM memory for China

U.S. Tightens Sanctions to Stifle China’s AI and Military Tech Growth

The United States has once again escalated its efforts to curb China’s technological advancements, particularly in artificial intelligence (AI) and military applications. According to a report from the Financial Times, the U.S. has introduced a new wave of sanctions aimed at restricting China’s access to advanced semiconductor tools and technologies. This marks the third major adjustment to these restrictions in as many years, as the U.S. continues its campaign to slow China’s progress in these critical fields.

“Groundbreaking and Sweeping” Measures

U.S. Commerce Secretary Gina Raimondo described the latest export controls as “groundbreaking and sweeping.” These measures are part of a broader, years-long “chip war” between the two global superpowers. Among the most significant changes, the U.S. has added 140 Chinese organizations to its “entity list.” This designation makes it nearly impossible for these groups to obtain export licenses for advanced technologies. Additionally, the export of high-bandwidth memory (HBM) to China has been explicitly banned, a move that could have far-reaching implications for China’s tech industry.

The Impact of Sanctions on China’s Tech Industry

Over the years, U.S. sanctions have had a noticeable impact on China’s semiconductor industry. These restrictions have made it increasingly difficult for Chinese companies to access cutting-edge technologies. However, the effectiveness of these measures has been a topic of debate. Reports have surfaced about how some Chinese entities have managed to circumvent sanctions, while others suggest that the restrictions have inadvertently strengthened China’s domestic capabilities.

For instance, some Chinese companies have shifted their focus to producing legacy chips, an area where they have seen significant growth. In the first quarter of 2024, China’s legacy chip production reportedly increased by 40%. This raises questions about whether the sanctions are achieving their intended goals or merely pushing China to innovate in other areas.

New Targets: Domestic Chip Tool Manufacturing

The latest round of sanctions appears to address some of the gaps in previous measures. According to an export controls analyst interviewed by the Financial Times, the new restrictions specifically target China’s domestic chip tool manufacturing capabilities. This includes 24 types of chipmaking tools that were not previously restricted. By focusing on these areas, the U.S. aims to slow the progress of major Chinese tech companies like Huawei and Semiconductor Manufacturing International Corporation (SMIC).

Interestingly, both Huawei and SMIC have managed to thrive despite earlier sanctions. For example, Huawei recently posted record profits, earning $78 billion in net profit during the first half of 2024. This resilience has prompted the U.S. to refine its approach to ensure the sanctions have the desired effect.

Foreign Direct Product Rule and International Cooperation

One of the most notable aspects of the new sanctions is the application of the Foreign Direct Product Rule (FDPR). This measure extends U.S. restrictions to non-U.S. companies that use American parts in their tools. However, not all countries will be subject to these rules. Japan and the Netherlands, for instance, have agreed to implement their own export restrictions, exempting them from FDPR requirements.

This international cooperation highlights the global nature of the semiconductor industry and the challenges of enforcing unilateral sanctions. By working with allies, the U.S. hopes to create a more unified front against China’s technological ambitions.

Remaining Loopholes

Despite the comprehensive nature of the new sanctions, some gaps remain. For example, CXMT, a Chinese producer of high-bandwidth memory, has not been added to the entity list. Similarly, some SMIC and Huawei shell companies have also escaped inclusion. These omissions could provide avenues for Chinese companies to continue acquiring advanced technologies, albeit through indirect means.

Key Takeaways

• The U.S. has introduced new sanctions targeting China’s AI and military tech capabilities, including a ban on HBM exports.
• 140 Chinese organizations have been added to the entity list, making it nearly impossible for them to obtain export licenses.
• The sanctions now include 24 types of chipmaking tools, aiming to curb China’s domestic semiconductor production.
• The Foreign Direct Product Rule extends restrictions to non-U.S. companies using American parts, with exceptions for Japan and the Netherlands.
• Some gaps remain, such as the exclusion of CXMT and certain SMIC and Huawei shell companies from the entity list.

As the U.S. continues to refine its approach, the effectiveness of these sanctions will be closely watched. Will they successfully hinder China’s technological advancements, or will they push the country to develop its own solutions? Only time will tell.