Opinion
Mint Explainer: Will new US curbs foil China's tech ambitions?
Summary
- The US has put 31 Chinese firms on an “unverified list” which means American tech firms will face greater hurdles in doing business with these Chinese firms.
The US Department of Commerce has unveiled a sweeping series of new export controls on Chinese technology firms. Washington will heavily restrict the sale of key technology to Chinese firms and stymie their efforts to build a self-sufficient technology base. Experts believe it signals a major hawkish shift in US policy. Mint breaks down this development:
What are these new export controls?
On Friday, the American Department of Commerce published a 100-page set of rules that restrict the supply of key technologies to Chinese firms.
31 Chinese companies like the Yangtze Memory Technologies Company have been placed on an “unverified list" maintained by Washington. This means that the US government is unable to verify if the listed firms are complying with regulations. American technology firms will face greater hurdles in doing business with these Chinese firms.
You might also like
Is India about to breach the 3% CAD red line?
Why Q2 results bode well for large private banks
State-run oil firms look to acquire Kenya project
Why Hero Moto's electric scooter has failed to wow investors
The US is also mobilising the Foreign Direct Product Rule, which prevents firms in the US and around the world from selling advanced equipment to China if American technology and inputs have been used. The US persons, which alludes to citizens and companies, will be barred from supporting Chinese advanced chip manufacturing firms.
The new restrictions will also hit Beijing’s efforts to develop supercomputers for military use.
How will this impact Chinese technology firms?
The new rules are expected to be devastating for Chinese technology ambitions. While the country has thrown its weight behind building self-reliance in advanced technology since at least 2015, it remains dependent on technology imports. In 2021, the country spent $432 billion on microprocessor imports alone.
While American sanctions had earlier prevented Chinese firms from acquiring the most sophisticated technologies, these new American restrictions have included a host of other technologies designed to stop China’s technological development. Earlier sanctions deployed against Huawei heavily damaged the firm’s ability to do business. At the government level, Beijing’s ambitions to develop technologies for both civil and military purposes, termed “civil-military fusion", will also face significant challenges.
What does the introduction of these new rules mean?
Some experts believe that the US has essentially declared war on China’s technology ambitions. This new hawkish turn in the Biden Administration’s policy has been spelled out by National Security Adviser Jake Sullivan. He points out that the US had long been comfortable simply maintaining a relative advantage over competitors. However, Sullivan argues that technology imports are being used by players like China and Russia to develop military capabilities and undercut America’s national security. Therefore, Washington would change its goals and look to maintain as large an advantage over its competitors as it can. This explains why the Biden Administration has targeted such a large selection of technologies and companies. The goal is to break any momentum China’s tech firms have acquired and maximise America’s considerable dominance over its main rival. Over time this will mean that China’s military capabilities will also stagnate.
How have different players reacted?
Predictably, Beijing was furious about the new restrictions. It alleged that the US was looking to cripple its firms while trying to maintain “hegemony" over critical technologies.
Industry associations, like the Semiconductor Industry Association, reacted with caution and urged Washington to take allies and industry players along as it looked to implement the rules. Major companies like Nvidia and AMD will suffer given their close business ties with Chinese firms.
American politicians largely approved of the move given the negative view of China that has taken root among the country’s political elite.
What are the challenges in implementing the rules?
Administration officials have admitted that the restrictions have so far been unilaterally decided by Washington. If the new rules are to be successful, they will need the support of allies like South Korea, Japan and key European players like the Netherlands. The decision will not be easy for these countries as many have close business ties with Chinese firms. This is especially true of firms like the Taiwan Semiconductor Manufacturing Corporation (TSMC) which sell chips to Chinese firms. Some concessions have been made. For example, American restrictions do not apply to foreign firms manufacturing chips in China. This will help South Korean firms like SK Hynix and Samsung.
Elsewhere in Mint
In Opinion, Raghuram G. Rajan & Viral Acharya write how QT shocks made QE so hard to reverse. Madan Sabnavis says this year’s Economics Nobel will ignite debate on reining in the financial system. Pramit Bhattacharya says India’s citizens need to know the whole truth about the 7th economic census. Long Story profiles one of India's most unsafe workplaces.
