# U.S. considers crackdown on memory chip makers in China
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-01
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: US Considers Limiting Chipmaking Equipment Shipments to China
Meta Description: The US may limit chipmaking equipment shipments to thwart China's semiconductor sector advances, protecting American companies like Micron and Western
URL: https://financedigest.com/u-s-considers-crackdown-on-memory-chip-makers-in-chinahtml

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By Alexandra Alper and Karen Freifeld

WASHINGTON (Reuters) – The United States is considering limiting shipments of American chipmaking equipment to memory chip makers in China including Yangtze Memory Technologies Co Ltd (YMTC), according to four people familiar with the matter, part of a bid to halt China’s semiconductor sector advances and protect U.S. companies.

If President Joe Biden’s administration proceeds with the move, it could also hurt South Korean [memory chip juggernauts Samsung](https://www.financedigest.com/samsung-micron-warn-chinas-xian-lockdown-could-disrupt-memory-chip-manufacturing.html "Samsung, Micron warn China’s Xian lockdown could disrupt memory chip manufacturing") Electronics Co Ltd and SK Hynix Inc, the sources said, speaking on condition of anonymity. Samsung has two big factories in China while SK Hynix Inc is [buying Intel Corp’s NAND flash memory chips manufacturing business](https://www.financedigest.com/ladbrokes-owner-entain-buys-sports-media-business-365scores.html "Ladbrokes owner Entain buys sports media business 365scores") in China.

The crackdown, if approved, would involve barring the shipment of U.S. chipmaking equipment to [factories in China that manufacture advanced NAND chips](https://www.financedigest.com/japans-factory-output-posts-biggest-fall-in-8-months-on-weak-autos-chips-sectors.html "Japan’s factory output posts biggest fall in 8 months on weak autos, chips sectors").

It would mark the first U.S. bid through export [controls to target](https://www.financedigest.com/dutch-telecom-kpn-locks-in-2023-targets-helped-by-cost-controls.html "Dutch telecom KPN locks in 2023 targets helped by cost controls") Chinese production of memory chips without specialized military applications, representing a more expansive view of American national security, according to export control experts.

The [move also would seek to protect](https://www.financedigest.com/protecting-the-unbanked-as-we-move-to-a-cashless-britain.html "Protecting the unbanked as we move to a cashless Britain") the only U.S. memory chip producers, [Western Digital](https://www.financedigest.com/digital-inclination-to-drive-the-western-blotting-market.html "Digital Inclination to drive the Western Blotting Market") Corp and Micron Technology Inc, which together represent about a quarter of the NAND chips market.

NAND chips store data in devices such as smartphones and personal [computers and at data centers](https://www.financedigest.com/the-logo-of-french-cloud-computing-company-ovhcloud-is-seen-on-a-data-center-building-in-strasbourg-france-october-13-2021-reuters-christian-hartmann.html "The logo of French cloud computing company OVHcloud is seen on a data-center building in Strasbourg, France, October 13, 2021. REUTERS/Christian Hartmann") for the likes of Amazon, Facebook and Google. How many gigabytes of [data a phone or laptop can hold](https://www.financedigest.com/dollar-rebound-holds-as-yields-steady-ahead-of-jobs-data.html "Dollar rebound holds as yields steady ahead of jobs data") is determined by how many NAND chips it includes and how advanced they are.

    Under the action being considered, U.S. officials would ban the [export of tools to China](https://www.financedigest.com/dutch-responds-to-us-china-policy-with-a-plan-to-curb-semiconductor-tech-exports.html "Dutch responds to US China policy with a plan to curb semiconductor tech exports") used to make NAND chips with more than 128 layers, according to two of the sources. LAM Research Corp and Applied Materials, both based in [Silicon Valley](https://www.financedigest.com/hsbc-acquires-british-arm-of-stricken-silicon-valley-bank.html "HSBC acquires British arm of stricken Silicon Valley Bank"), are the primary suppliers of such tools.

All the sources described the administration’s consideration of the matter as in the [early stages](https://www.financedigest.com/valuing-your-early-stage-startup.html "Valuing your Early Stage Startup"), with no proposed regulations yet drafted.

Asked to comment on the possible move, a spokesperson for the Commerce Department, which oversees export controls, did not discuss potential restrictions but noted that “the Biden administration is focused on impairing (China’s) efforts to manufacture [advanced semiconductors to address significant national security risks](https://www.financedigest.com/u-s-dollar-advances-vs-major-currencies-as-risk-appetite-fades.html "U.S. dollar advances vs major currencies as risk appetite fades") to the United States.

FAST-GROWING COMPANY

YMTC, founded in 2016, is a [rising power in manufacturing NAND chips](https://www.financedigest.com/harley-davidson-profit-drops-on-rising-costs-and-chip-shortages.html "Harley-Davidson profit drops on rising costs and chip shortages"). Micron and Western Digital are under pressure from YMTC’s low prices, as the [White House wrote in a June 2021 report](https://www.financedigest.com/white-bullet-releases-ad-funded-piracy-report-for-world-intellectual-property-organisation-wipo.html "White Bullet releases Ad Funded Piracy Report for World Intellectual Property Organisation (WIPO)") https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf. YMTC’s expansion and low-price offerings present “a direct [threat” to Micron and Western Digital](https://www.financedigest.com/financial-digital-transformation-an-opportunity-not-a-threat.html "Financial digital transformation: An opportunity, not a threat"), that report said. The report described YMTC as China’s “national champion” and the recipient of some $24 [billion in Chinese subsidies](https://www.financedigest.com/intel-wants-5-billion-more-in-german-subsidies-for-chip-plant-bloomberg-news.html "Intel wants billion more in German subsidies for chip plant – Bloomberg News").

YMTC, already under investigation by the Commerce Department over whether it violated U.S. [export controls by selling chips](https://www.financedigest.com/exclusive-biden-to-hit-china-with-broader-curbs-on-u-s-chip-and-tool-exports.html "Exclusive: Biden to hit China with broader curbs on U.S. chip and tool exports") to Chinese telecoms company Huawei, is in talks with Apple Inc to supply the top U.S. smartphone maker with flash memory chips, [according to a Bloomberg report](https://www.financedigest.com/worst-flooding-since-1998-leaves-33bn-economic-toll-in-china-according-to-aon-catastrophe-report.html "Worst flooding since 1998 leaves bn economic toll in China, according to Aon catastrophe report").

LAM Research Corp, SK Hynix and Micron declined comment on the U.S. policy. Samsung, Applied Materials Inc, YMTC and Western [Digital Corp did not immediately respond](https://www.financedigest.com/how-bank-cisos-can-respond-to-a-digital-hostage-scenario.html "How Bank CISOs Can Respond to a Digital Hostage Scenario") to requests for comment.

CONGRESS ACTS

Tensions between [China and the United States over the tech sector deepened under Biden’s](https://www.financedigest.com/biden-signs-bill-to-boost-u-s-chips-compete-with-china.html "Biden signs bill to boost U.S. chips, compete with China") predecessor Donald Trump and have continued since. Reuters reported on July 8 that Biden’s administration is also considering restrictions on shipments to [China of tools to make advanced](https://www.financedigest.com/stocks-advance-u-s-dollar-retreats-as-china-drops-quarantine-rule.html "Stocks advance, U.S. dollar retreats as China drops quarantine rule") logic chips, seeking to hamstring China’s largest chipmaker, SMIC.

The U.S. Congress last week approved legislation aimed at helping the United States compete with [China by investing](https://www.financedigest.com/credit-agricole-launches-china-ma-and-investment-banking-business.html "Credit Agricole launches China M&A and investment banking business") billions of dollars in domestic chip production.

Chipmakers that take money under the measure would be prohibited from building or [expanding manufacturing](https://www.financedigest.com/pfizer-to-invest-more-than-2-5-billion-to-expand-european-manufacturing.html "Pfizer to invest more than .5 billion to expand European manufacturing") for certain advanced chips, including advanced memory chips at a level to be determined by the administration, in countries including China.

According to Walt Coon of the consulting firm Yole Intelligence, YMTC [accounts for about 5% of worldwide NAND flash memory chip production](https://www.financedigest.com/skin-lightening-products-remain-sought-after-among-women-who-continue-to-account-for-80-of-sales-study.html "Skin Lightening Products Remain Sought-after among Women, who Continue to Account for 80% of Sales: Study"), almost double from a year ago. Western [Digital stands](https://www.financedigest.com/the-neurotrophic-keratitis-treatment-market-to-stand-on-quality-assured-digitization.html "The Neurotrophic Keratitis Treatment Market to stand on quality assured digitization") at about 13% and Micron 11%. Coon said YMTC would be greatly hurt by restrictions like those that Biden’s administration is contemplating.

“If they were stuck at 128, I don’t know how they would really have a path forward,” Coon said.

Production of NAND [chips in China](https://www.financedigest.com/how-china-became-ground-zero-for-the-auto-chip-shortage.html "How China became ground zero for the auto chip shortage") has grown to more than 23% of the worldwide total this year from under 14% in 2019, while production in the United States has decreased from 2.3% to 1.6% over the same period, Yole data showed. For the American companies, nearly all of their [chip production](https://www.financedigest.com/apple-likely-to-cut-iphone-13-production-due-to-chip-crunch-bloomberg-news.html "Apple likely to cut iPhone 13 production due to chip crunch -Bloomberg News") is done overseas.

It was unclear what [impact the potential restrictions might](https://www.financedigest.com/brexit-might-impact-our-migrant-pool-magazine.html "“Brexit might impact our migrant pool.”-Magazine") have on other players in China. Intel, which retains a [contract to manage operations in the factory](https://www.financedigest.com/asias-factory-activity-contracts-despite-chinas-covid-reopening.html "Asia’s factory activity contracts despite China’s COVID reopening") it is selling to SK Hynix in China, is already producing memory chips with 144 layers at the Chinese site, according to an Intel press release.

(Reporting by Alexandra Alper and Karen Freifeld; Additional reporting by Stephen Nellis; Editing by Chris Sanders and Will Dunham)


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