Semiconductor export curbs hitting China to be followed by biotech and AI restrictions: US official

Sweeping export controls announced earlier this month on high-end semiconductors and chip-making tools to China will almost certainly be followed by similar curbs on quantum computing, high-end biotechnology and artificial intelligence software given an overriding US focus on protecting national security over trade or the implications for US companies or the Chinese economy, a senior US official said Thursday.

The administration of President Joe Biden has announced these rules unilaterally, but is aware their effectiveness depends on a unified stance from key allies, including advanced chip tool makers Japan and the Netherlands, with a multilateral agreement expected soon, said Alan Estevez, industry and security undersecretary at the US Commerce Department, adding that the intent is not to impede China economically.

"Will we end up doing something in those areas? If I was a betting person, I would put money on that," said Estevez, who oversees the Bureau of Industry and Security charged with crafting and enforcing the new rules.

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"That is not, despite some of the views out there, about the economic destruction of China," he added. "This is about national security."

Estevez, who joined the Commerce Department after a 36-year career with the Defence Department, said the fact that US National Security Adviser Jake Sullivan cited export restrictions weeks before the Commerce Department announcement underscored the priority given across various US agencies.

"When I see an action that needs to be taken for national security, I have top-down coverage to take care of that regardless of the impact," he said, adding that Washington would be realistic about what it limits.

"We do look to see what's available in the world and whether it makes sense."

On October 7, the Commerce Department announced a ban on sales to China of high-end US chips and the tools, components and software used to make them, with a particular focus on artificial intelligence and US software with potential military application.

It also extended its reach well beyond US shores, limiting to China foreign countries' exports that rely on these US technology or software. And it prevented US citizens from consulting or otherwise assisting China in sensitive areas even as it tightened oversight of Chinese companies seen as potential or actual violators.

Beijing has slammed the hugely consequential new rules as a malicious attempt to block Chinese companies in violation of global trade rules. But it has yet to roll out expected countermeasures.

The US official said he hoped China would recognise that the measures were targeted and carefully designed.

"I don't want to conjecture what they're going to do," said Estevez. "It's not a massive shutdown of Chinese industry. It's a targeted shutdown of using our capability against us, and we hope that they're going to respond, take that into account."

The Chinese embassy in Washington did not immediately respond to a request for comment.

Estevez, speaking at the Centre for a New American Security, likened Washington's expanded use of hi-tech export restrictions to "an anaconda slowly squeezing and squeezing and squeezing".

He drew a parallel to US efforts to curtail weapons development by China and Russia since the latter's February 24 invasion of Ukraine, including those involving radar hopping, precision guidance, radar evading, autonomous vehicles and artificial intelligence.

Estevez said the Commerce Department's so-called unverified list of Chinese companies was not a blacklist per se. However, companies that fail to explain how they use high-end chips and equipment could find themselves on what amounts to a blacklist.

Earlier this month, 31 Chinese companies were added, including Yangtze Memory Technologies Company, the Asian giant's most successful memory chip company.

Chinese companies on the unverified list are given 60 days to show they are not misusing or diverting technologies. Those that do not comply are transferred to a so-called entity list, leading to an outright ban.

Working their way off the entity list involves a careful review by the US Defence, State, Commerce and related agencies.

Ridding itself of tightening export restrictions would require China to "change its behaviour" by, for example, halting intellectual property theft, economic coercion of Western companies, the suppression of its own people and otherwise violating human rights using Western technology.

"For Western firms, it's case by case. For Chinese firms, it's a presumption of denial," Estevez said. "My job is not to change their behaviour. I'm not here as a diplomat ... My job is to protect national security."

Among many questions involving the tightening US export restrictions, which draw on rules initially devised to stem the spread of weapons of mass destruction, are how they will affect Beijing's Made in China 2025 road map to dominate key global technological sectors and President Xi Jinping's bid to avoid the middle-income trap that limits a nation's advance.

As the US relies more on trade and financial sanctions - potentially spreading itself thin - it remains unclear how effective these will be as a geopolitical tool. "It is really a mechanism to help shape behaviour," said Estevez.

"Should something start taking place in the [Taiwan] Strait, I would expect ... to see us start taking additional action. So I would look at export controls as part of the integrated deterrents."

China views Taiwan as a breakaway province to be reunited by force if necessary. Few countries, including the US, recognise the self-governing island as an independent state.

US officials said semiconductors were increasingly viewed as the "tip of the spear" in national security. While the export restrictions are essentially defensive and designed to slow China down, US strategy includes an offensive component, seen in rebuilding its own capabilities in part through the US$53 billion Chips and Science Act.

While the new chip rules are far-reaching, analysts say much will depend on implementation and enforcement.

"This is going to hit US industry pretty hard, and many elements of the Chinese [semiconductor] sector, cloud services," said Paul Triolo, senior vice-president of the Albright Stonebridge Group consultancy.

The Commerce Department has an officer at the US embassy in Beijing exclusively responsible for this effort, and has been criticised by Washington hawks for clearing some 95 per cent of the applications for export licences.

But this is somewhat deceptive, the US National Defence University graduate said. Scores of intelligence experts from Washington and allied nations feed information to that US embassy official. While the Commerce bureau would welcome more manpower and resources, it claims to have many effective tools.

Furthermore, the 95 per cent US license-approval figure is misleading, he added, since a number of US and Chinese-affiliated companies do not bother to apply for licences, knowing they would be turned down.

China, in criticising stiffer US export restrictions, has pointed out the potential damage to US companies.

After the bureau told US memory firm Seagate Technologies in August it allegedly violated export sanctions, the company announced lay-offs even as it denied any wrongdoing. A month later, after being ordered to halt sales of AI chips to China, semiconductor designer Nvidia said it would suffer a potential US$400 million quarterly hit to sales.

But Chinese firms are also feeling the crunch. Tech shares fell sharply after the US export curbs were announced. A flurry of emergency meetings between trade officials and Chinese tech firms has followed

Chinese AI chip maker Biren Technology, for instance, saw its value plummet after the news, given its contract to obtain advanced 7-nanometer semiconductors from global leader Taiwan Semiconductor Manufacturing Company. Washington has imposed restrictions on chips smaller than 14 nanometres, a measure of how many integrated circuits are crammed onto a wafer.

Estevez said his bureau had conferred extensively with US companies, whom he said were most interested in clarity, fairness and some assurance that allies would face similar export restrictions to avoid any competitive disadvantage. He claimed their response had been largely supportive and patriotic.

"The allies will follow it. They will cooperate with it," said Xiaomeng Lu, Eurasia Group's geo-technology director. "But I don't think Europe and Japan will be full- throated."

Once allies are brought on board, Estevez said he expected a favourable response in foreign capitals.

"The threat of Chinese developments and Chinese advancement and Chinese military-civil fusion, Chinese human rights transgressions don't just impact the United States," said Estevez. "They impact the United States and its allies. I'm very bullish. I have zero confidence that we're not going to have a deal."

Centre for a New American Security technology and national security director Martijn Rasser has called the powerful Commerce bureau the most important agency no one has ever heard of.

"We're trying to work at that so people have heard of us," Estevez told reporters.

This article originally appeared on the South China Morning Post (SCMP).

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