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Business News/ Technology / U.S., in Chip War with China, Extends Some Allowances for Asian Allies

U.S., in Chip War with China, Extends Some Allowances for Asian Allies


Chip makers Samsung, SK Hynix and TSMC can maintain their operations in China for the foreseeable future, but significant tech upgrades could prove difficult.

Samsung is one of the few foreign chip makers with sizable China-based production sites. Premium
Samsung is one of the few foreign chip makers with sizable China-based production sites.

The U.S. has informed three major Asian chip makers that they can maintain their current operations in China for the foreseeable future, though significant tech upgrades would prove difficult.

The Biden administration levied major restrictions on China’s semiconductor industry a year ago, aiming to curtail Beijing’s military advances in advanced technologies. The effort particularly spooked South Korea’s Samsung Electronics and SK Hynix, which dominate in memory chips, as well as Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker.

The three firms are among the few foreign chip makers with sizable China-based production sites. Placing significant hurdles to their business there, the companies worried, would hurt their bottom lines and disrupt the tech supply chain.

The Biden administration in October 2022 granted one-year waivers to the three companies. But concerns persisted, with SK Hynix even floating the possibility of moving out of China in the long term if it became too difficult to continue operations there.

On Monday, South Korea’s government said Samsung and SK Hynix were designated as “validated end users," which will allow them to import American chipmaking equipment for their existing China-based facilities without having to seek separate U.S. approval. The designation doesn’t carry an end date, South Korea’s presidential office said in the announcement.

The two countries have agreed to a list of preapproved chipmaking equipment that would allow Samsung and SK Hynix to maintain their China-based facilities and carry out minor upgrades to current production technology, according to people familiar with the negotiations.

TSMC is expected to be granted another one-year waiver such as the one it received last year, according to people familiar with the U.S. government’s moves. Washington has told the company that it can maintain its operations in China for the foreseeable future so long as it doesn’t make significant technological upgrades.

It isn’t known if TSMC will be designated as a validated end user, or if Samsung and SK Hynix will be issued a separate one-year waiver. Taiwan, unlike South Korea, hasn’t publicly commented on the matter.

The U.S. Commerce Department’s Bureau of Industry and Security, which implements export restrictions and the validated end-user program, declined to comment. The Biden administration’s move had been widely anticipated by the chip industry.

SK Hynix said the U.S. decision would contribute to the stabilization of the global semiconductor supply chain. Samsung said uncertainties about its China-based chip business had been significantly removed. A TSMC spokeswoman declined to comment.

South Korea and SK Hynix have collectively invested about 55 trillion won, equivalent to around $40.7 billion, into their China-based chipmaking facilities since 2010, securities firm CLSA projects.

For the South Korean firms, questions still loom over the longer-term prospects for their China-based production. Further advances in the production of one type of memory would require new machinery barred from China. Samsung and SK Hynix must also stay mindful of capacity expansions that could violate the terms of U.S. subsidies that seek to limit investment in China, said Yeon Won-ho, of the Korea Institute for International Economic Policy, a state-run think tank.

“The latest measures lift short-term uncertainties for South Korean chip makers, as they will be able to continue with their current operations in China," said Yeon, who researches economic security. “But not all restrictions affecting Korean businesses [in China] have been resolved."

For now, Samsung and SK Hynix wouldn’t see a strong need to expand their China production, given the prolonged slump in the memory market that has strained finances, said Avril Wu, a Hong Kong-based analyst at TrendForce, a chip-market analytics firm.

On Wednesday, Samsung forecast a third-quarter drop in operating profit of roughly 80% from the prior year. Analysts polled by FactSet expect SK Hynix to swing to a roughly $1.2 billion loss for the quarter versus the prior year.

China is heavily reliant on Samsung and SK Hynix for the two major forms of memory called NAND flash and DRAM. Chinese rivals aren’t yet capable of producing at scale the types of advanced memory chips it needs for tech products. China’s dependency only grew stronger after Beijing in May banned certain local firms in key information-infrastructure industries from buying memory chips from U.S.-based Micron Technology.

Samsung produces roughly 40% of its NAND flash memory in China, while SK Hynix produces around 45% of its DRAM and 30% of its NAND flash in the country, according to TrendForce. In the second quarter, Samsung, SK Hynix and Micron together accounted for around 96% of the DRAM market and roughly 62% of the NAND flash market, TrendForce said.

Other U.S.-led measures targeting China’s semiconductor industry will continue to limit the future direction of the South Korean plants in China. Washington has attached so-called China guardrails to the U.S. Chips Act subsidy program that restricts those receiving the funding from expanding their semiconductor investments in China beyond a set limit.

The Netherlands and Japan, at the U.S.’s urging, has placed bans on exports to China of equipment essential for making advanced chips, including some that SK Hynix uses to produce DRAM in China.

Based on the types of equipment likely approved, the two South Korean chip makers would be able to upgrade their China operations by one or two generations, according to Sanjeev Rana, a Seoul-based senior analyst at CLSA. But, he said, that would still be far from the industry’s most-advanced technology.

TSMC currently operates facilities for less-advanced chips in the eastern Chinese city of Nanjing. In April, the company said it was expanding capacity there for making older 28-nanometer chips.

Yuka Hayashi contributed to this article.

Write to Jiyoung Sohn at and Yang Jie at

China is heavily reliant on SK Hynix for a major type of memory chip called NAND flash.
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China is heavily reliant on SK Hynix for a major type of memory chip called NAND flash.

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