Chinese Chip Companies Adapt Amid U.S. Export Controls

By Eduardo Baptista and Heekyong Yang

BEIJING/SEOUL (Reuters) – Chinese chip companies targeted by Washington with fresh export controls have vowed to speed up supply chain localisation, claiming they can continue production thanks to recent equipment stockpiles.

The latest curbs, marking the third U.S. crackdown on the Chinese sector in three years, focus on chipmaking equipment, software, and high-bandwidth memory. These measures restrict exports to 140 companies, including Naura Technology Group and ACM Research (NASDAQ:ACMR).

Empyrean, known as Beijing Huada Jiutian Technology, stated that its inclusion on the list would have little impact on operations. The company aims to accelerate the localisation of full-process electronic design automation (EDA) tools.

Jiangsu Nata Opto-Electronic Material reported it had stockpiled supplies and planned to make domestic substitutions. Meanwhile, Beijing Huafeng Test & Control Technology expressed that it had already fully localised its supply chain, according to a report from the 21st Century Business Herald.

While Chinese authorities termed the action "economic coercion", chip-making stocks rose slightly, as analysts observed that the curbs were less severe than anticipated.

Manageable Disruption

The U.S. restrictions target China's reliance on foreign equipment for manufacturing chips, remarked Martijn Rasser from Datenna. Jefferies analysts predict that capital expenditure by the Chinese chip industry will likely drop by $10 billion, or about 30%, to $35 billion next year due to these curbs.

However, other analysts suggested that the intended effects might not materialize, as Chinese firms have increased their purchases of foreign-made equipment since last year.

Data from China Customs shows a 33% increase in imports of semiconductor equipment, totaling $24.12 billion in the first nine months of this year.

Jeff Koch from SemiAnalysis said the situation remains challenging for leading-edge manufacturers but is unlikely to significantly disrupt current progress.

CXMT Exclusion

The exclusion of ChangXin Memory Technologies (CXMT), a key player in AI chip manufacturing, from the entity list caught some industry observers off guard. The Biden administration's restrictions aim to limit China's military applications of advanced AI chips.

Shares of some South Korean equipment suppliers to CXMT rose following this exclusion, which provided short-term relief to South Korea's chip sector. Ryu Young-ho, an analyst at NH Investment & Securities, noted that revenue from China for these firms should not be significantly impacted for now. For instance, Jusung Engineering's shares increased by 7.7%, and Mirae Corp, earning about 15% of its revenue from CXMT, also saw a 1.4% rise in shares after earlier gains of 7%. ($1 = 1,403.3800 won)