US May Allow Samsung and TSMC to Continue Their Business in China: Silicon World

As the United States’ chip sanctions spread to more chip companies, US President Joe Biden plans to extend the export control policy exemption period for South Korean and Taiwan-based companies to alleviate the supply shortage in the semiconductor industry. 

BEIJING, June 13 (TiPost) —  According to The Wall Street Journal, Alan Estevez, the deputy secretary of commerce responsible for industrial and security affairs, said at an industry conference last week that the Biden administration plans to extend an existing exemption to a U.S. semiconductor export control policy that will allow South Korean and Taiwanese semiconductor manufacturers to continue their business in mainland China.

He added that “these exemptions will be renewed in the foreseeable future.”

The report said that this will affect Samsung, SK Hynix, TSMC and many other semiconductor chip manufacturers’ investment layout in existing wafer plants in mainland China, maintain their existing chip business in mainland China, without fear of retaliation from the United States. The U.S. Department of Commerce declined to comment on this.

On October 7 last year, the Bureau of Industry and Security (BIS), a subsidiary of the U.S. Department of Commerce, issued a new and broad range of export control measures, restricting U.S. companies from exporting advanced artificial intelligence (AI) and supercomputing chips, manufacturing and production equipment, and certain necessary tools to China, upgrading the crackdown on China’s chip semiconductor industry, and pushing the Netherlands, Japan, South Korea, and Taiwan to no longer sell U.S.-specified advanced manufacturing process chips and chip manufacturing equipment to mainland China.

Under this policy, facility licenses owned by Chinese entities will face “presumed denial,” and U.S., South Korean, and Japanese suppliers selling cutting-edge production equipment to local Chinese chip manufacturers will need to apply for licenses and undergo strict scrutiny, involving various aspects such as chip design, manufacturing, and materials.

After the implementation of the new export control regulations, semiconductor companies have been greatly affected. In November last year, US semiconductor equipment giant Applied Materials stated that the BIS ban would result in a 30% decrease in the company’s revenue in 2022, or $2-2.5 billion, and a 50% decrease in sales in the mainland China market, followed by layoffs of 1,300 people; chip equipment giant KLA’s revenue in 2023 will decrease by $600-900 million due to the ban; Nvidia announced in October last year that it would lose $400 million in potential sales in China in the third quarter of 2022 due to the ban, and launched a China-exclusive version of the A800 AI chip. The situation for Korean semiconductor companies is also not optimistic.

Under strong opposition from Samsung and SK Hynix, the US granted a one-year exemption for export controls on Korean companies until October of this year. Taiwan Semiconductor Manufacturing Company (TSMC) in Taiwan was also exempted.

Under the current “cold spell” in the chip semiconductor industry, US policies undoubtedly have a huge impact on the entire industry chain. According to the Chinese Ministry of Commerce’s announcement in December last year, China has appealed to the WTO dispute settlement mechanism regarding the US export control measures on chips and other products to China. China stated that the US obstructed the normal international trade of chips and other products, which is a typical practice of trade protectionism.

China is the largest semiconductor export market for Korea. The Korean Chamber of Commerce pointed out that the proportion of Korean semiconductor products exported to China increased from 3.2% of the total exports to China in 2000 to 39.7% last year. In the past 20 years, Korean semiconductor product exports to China have increased nearly 13 times. Therefore, US policies have caused some Korean companies to feel very uneasy and are considering giving up US government assistance.

US officials have recently stated that they are not seeking to decouple from China. US Treasury Secretary Janet Yellen has repeatedly stated in speeches that a complete separation from the Chinese economy would be catastrophic for both the US and China. President Biden also stated at a press conference after the G7 summit that the US is not seeking to decouple from China.

However, the US Department of Commerce added 31 Chinese entities to its “Entity List” this morning, including Shanghai Hygon Information Technology Co., Ltd. of the Shanghai Supercomputing Center. The “Entity List” is one of the US’ sanction tools, which mainly restricts the export of advanced US technology and products. According to incomplete statistics from the TiPost App, there are currently more than 70 Chinese companies and research institutions on the US BIS “Entity List”.

On June 12, Xinmou Research published an article stating that the current semiconductor trade war between China and the US has entered a stage of oscillation within a confined range, while the overall situation has been basically determined. Under the pressure from US companies actively seeking cooperation with Chinese companies, the US government is continuing to closely monitor key Chinese enterprises and industries while also willing to allow American companies to leverage the Chinese market to emerge from their difficulties. Against this background, opportunities for international cooperation are expected to gradually emerge.

On February 23 of this year, at the 2023 Export Control Compliance Forum, Jiang Chenghua, Director of the Industry Security and Import and Export Control Bureau of the Ministry of Commerce, mentioned that China is continuously improving its export control legal system and improving the national export control management system. Export control compliance is an important part of corporate compliance, and compliance is the foundation of safety while non-compliance is a source of risk. The development direction of export control compliance is to be guided by the rule of law, standardization, and internationalization. Currently, the legislative process of the “Regulations on the Administration of Dual-use Items Export” is being accelerated.

“We encourage enterprises to establish sound internal compliance mechanisms, and fasten the safety belt of ‘compliance’,” Jiang Chenghua suggested. Corporate compliance is becoming increasingly important, and when necessary, external legal counsel can be hired to participate in corporate compliance work.

As of the close of trading on June 13, the stock prices of Samsung Electronics, SK Hynix, and TSMC, all mentioned in the report, have all risen sharply. Among them, the stock price of Samsung Electronics (KRX: 005930) rose 1.41%, SK Hynix (KRX: 000660) rose 4.09%, and TSMC (TWSE: 2330) rose 3.31%. (This article was first published on the TiPost App, author | Lin Zhijia)

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