Explainer-How China might retaliate towards new US chip curbs

By Eduardo Baptista

BEIJING (Reuters) – Washington’s new curbs on China’s semiconductor trade are fanning fears that Beijing might strike again, as commerce tensions between the 2 largest economies intensify.

Chinese language authorities have vowed to take motion to safeguard the pursuits of their firms and the nation has lately amassed a sequence of instruments that analysts say they will use to retaliate towards U.S. firms. Listed here are a few of them:

SECURITY REVIEWS

Beijing’s announcement in Could final 12 months that it will block some authorities purchases from Micron (NASDAQ:MU) after the U.S. reminiscence chip maker failed a safety evaluate is broadly thought to be one in all China’s first retaliatory strikes within the U.S.-China chip warfare.

Concern has grown that U.S. tech large Intel (NASDAQ:INTC) may very well be a future goal, after the Cybersecurity Affiliation of China (CSAC) alleged the American agency had “always harmed” the nation’s nationwide safety and pursuits and that its merchandise bought in China needs to be topic to a safety evaluate.

Intel is among the largest suppliers of chips utilized in digital gadgets together with private computer systems, and conventional servers in knowledge centres in China. It acquired over 1 / 4 of its whole revenues from China final 12 months.

Retaliatory motion might additionally occur by way of different channels. U.S. enterprise chambers in China have in previous years complained of U.S. corporations going through elevated points corresponding to slower customs clearance and extra authorities inspections throughout occasions of escalated tensions such because the U.S.-China commerce warfare.

UNRELIABLE ENTITIES LIST

China in September introduced that it will probe U.S. agency PVH Corp (NYSE:PVH), which owns vogue manufacturers Tommy Hilfiger and Calvin Klein, for “unjustly boycotting” Xinjiang cotton and different merchandise underneath the unreliable entity checklist (UEL) framework.

That was the primary time Beijing had taken motion towards an organization for eradicating Xinjiang cotton from its provide chain to adjust to U.S. guidelines and one of many few occasions it had used the UEL because the checklist’s creation.

Beijing created the checklist through the first Trump presidency and threatened to ban U.S. firms from importing, exporting and investing in China.

To this point the checklist has included U.S. firms concerned within the sale of arms to Taiwan corresponding to Lockheed Martin (NYSE:LMT) and RTX’s Raytheon (NYSE:RTN) Missiles & Protection.

EXPORT CONTROLS ON CRITICAL MINERALS

China dominates international mining and processing of uncommon earth supplies and since final 12 months has imposed guidelines to manage their export.

In August, China imposed export limits on antimony, a strategic steel utilized in army functions corresponding to ammunition and infrared missiles in addition to in batteries and photovoltaic gear.

China issued new curbs on some graphite merchandise that go into electrical automobile batteries in October 2023, days after Washington banned abroad subsidiaries of Chinese language firms from buying restricted semiconductors.

In July 2023, China introduced restrictions on the export of eight gallium and 6 germanium merchandise, metals broadly utilized in chipmaking, citing nationwide safety pursuits.

DUAL-USE CURBS

China has not too long ago expanded its oversight of dual-use objects – merchandise which have each civilian and army functions – with new export controls that come into impact on Dec. 1.

The brand new guidelines, first introduced in September, create a unified and simplified export management checklist, whereas additionally requiring Chinese language exporters of dual-use objects to reveal particulars about finish customers. That enables Beijing to raised determine provide chain dependencies on China inside the U.S. military-industrial complicated.

The checklist is anticipated to cowl a variety of superior applied sciences the place China is both main or seeking to develop into a number one energy, together with chip know-how, synthetic intelligence, quantum computing and drones.

Chinese language sanctions on U.S. drone producer Skydio this 12 months have lower its provide of batteries, in response to the Monetary Instances.

“As containment (of China) intensifies, extra U.S. industries, companies and your entire financial system can pay an more and more heavy worth,” state-owned outlet World Instances wrote in an opinion article about Skydio earlier this month.