How the latest US chip export controls exposed China’s weak link in the semiconductor supply chain

The US government has recently increased its control over the export of certain chip-making equipment, revealing a significant weakness in China's semiconductor supply chain. Despite China's strides towards self-sufficiency in semiconductor production, these new regulations have highlighted their reliance on foreign technology. The Biden administration has tightened regulations, citing national security concerns, with the aim of hindering China's development of artificial intelligence (AI) by restricting their access to less advanced chip-making equipment from ASML and data-centre chips from Nvidia.

The US Bureau of Industry and Security has intensified restrictions on a range of equipment essential for semiconductor wafer fabrication, including lithography, etching, deposition, implant and cleaning tools. They have also abolished the 'de minimis' rule, which previously allowed non-American companies to sell products containing a certain percentage of American-origin technology. Now, any product that meets US-specified parameters will be subject to US export controls, regardless of the proportion of US-origin technology it contains. This means that ASML, a Dutch company, will be restricted from shipping certain deep ultraviolet (DUV) lithography systems to China.

This change in regulations could have a significant impact on China's semiconductor industry. If there are no local substitutes available and certain equipment is off the table, the impact could be substantial. China has been working for years to develop its own lithography systems, but their best machine to date is still far behind those produced by ASML and Japan's Nikon. The US sanctions have prompted some Chinese chip-related start-ups to seek out investment funds, pitching their ability to help fill the void left by banned foreign suppliers. However, the path to self-sufficiency is fraught with challenges, and it remains to be seen how successful these efforts will be.