US China trade conflict

US bans ‘advanced tech’ firms from building facilities in China for 10 years

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US technology companies that receive federal funding will not be allowed to build "advanced technology" facilities in China over the next decade, according to Biden administration officials.

The guidelines were announced as part of US President Joe Biden's $50bn (£43bn) plan to boost the domestic production of semiconductors. 

The news is the latest development of a long-running technological dispute between Washington and Beijing, as US firms demand more government support to reduce reliance on components produced in Chinese factories.

"We're going to be implementing the guardrails to ensure those who receive Chips funds cannot compromise national security. They're not allowed to use this money to invest in China, they can't develop leading-edge technologies in China for a period of ten years," said Gina Raimondo, US Commerce Secretary. 

The ban on the building of new technology factories in China comes only a week after US chipmaker Nvidia revealed it had been told by the US Department of Commerce to halt exports of some of their artificial intelligence (AI) technology to China, due to a potential risk of the products being used by, or diverted to, a “military end-user”.

As part of this effort to diversify from Chinese technology, in August the US Congress approved the Chips and Science Act (Chips), which provides $52bn (£43bn) in incentives for the domestic manufacturing of semiconductors, as well as related research and development projects.

The US Department of Commerce said it hoped to begin seeking applications for the funding of new production US facilities by next February and provide a 25 per cent investment tax credit for chip plants from 2023.

“These funds are intended to help companies maximise the scale of their projects. We’re going to be pushing companies to go bigger and be bolder,” Raimondo said.

“We’re going to negotiate these deals one at a time,” she added, saying the companies receiving government funds would need to “prove to us the money is absolutely necessary to make these investments”.

The US currently produces roughly 10 per cent of the global supply of semiconductors, which are key to everything from cars to mobile phones, down from nearly 40 per cent in 1990. China has a little over 5 per cent of the global foundry market share, with Taiwan being the main producer of the technology. The small island country currently manufactures 65 per cent of the world's semiconductors and almost 90 per cent of the advanced chips.

The Chips Act was interpreted as a direct response to the semiconductor shortage, which has forced companies including Ford, Jaguar Land Rover, Volkswagen, General Motors, Nissan, Daimler, BMW, Renault and Toyota to shut factories, scale back production or exclude high-end features such as integrated satellite navigation systems. 

Under the new guidelines, companies that receive the Chips funding would only be able to expand their mature node factories in China to serve the Chinese market, according to Raimondo said. The Chinese Embassy in Washington has opposed the semiconductor bill, calling it an act reminiscent of "Cold War mentality."

Earlier this year, Raimondo warned that the global chip crisis is expected to last through 2023 and perhaps longer as manufacturing still struggles to keep up with demand.

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