Small Yard, Even Higher Fence.

Crippling China’s AI and Semiconductor Dream

A few days ago, the US government issued an Interim Final Rule (IFR) to slow China’s development of advanced AI with potential military applications. The objective is also to slow China's development of an indigenous semiconductor ecosystem that could threaten US and allied national security.

The stated purpose of these new controls is to impair or slow China's ability to produce advanced semiconductors, particularly those used in Military Systems, Artificial Intelligence and Supercomputing.

These new controls are part of the United States' "small yard, high fence" strategy, focusing on protecting a narrow set of technologies critical to national security.

This infographic summarises the key embargo areas and bans. If your business is impacted, you should review the full legal documents for detailed information and specific requirements.

There are five main areas of added Export Controls to China:

Semiconductor Manufacturing Equipment (SME)

The IFR introduces new controls on 24 types of SMEs, including equipment for epitaxial growth, testing, inspection, wafer fabrication, and three types of software tools used in semiconductor development or production.

It also revises the existing "SME Foreign Direct Product (FDP) rule" to broaden its scope and introduces a new footnote encompassing a broader range of foreign-produced items. The jurisdiction is extended for equipment produced using US technology or software by companies in the Entity List, even if the final product has minimal US content.

After the last round of restrictions, The US government has had to watch tool sales of Western companies jump to 40% of all tool sales—the opposite of the intention.

The IFR will not only further tighten the grip on future tool sales but also tighten the installed base of tools in China.