US tech companies prohibited from building facilities in China

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As part of its strategy to boost the manufacture of semiconductors, the Biden administration has announced today that US tech companies who receive funding awards from the government will not be permitted to build “advanced technology facilities” in China for 10 years.

The approval of the Chips and Science Act (Chips) in August is part of the government's strategy to reduce US companies' reliance on components produced in China.

Applications are set to be received by next February for $39bn in government semiconductor subsidies to build new production facilities in the US. The bill also includes a 25% investment tax credit for chip plants, worth around $24 billion. 

“We’re also going to be implementing the guardrails to ensure those who receive Chips funds cannot compromise national security,” the US commerce secretary, Gina Raimondo, said. “They’re not allowed to use this money to invest in China; they can’t develop leading-edge technologies in China; they can’t send latest technology overseas.”

Read more: Biden signs on $52.7 bln microchip investment bill to 'counter China'
 
Despite the fact that the semiconductor was invented in the United States, the country only produces about 10% of the global supply, according to the White House, with the remaining 75% coming from east Asia. Most chips are manufactured in factories in Taiwan and South Korea.

Global shortages of computer chips, prompted by the coronavirus pandemic and the conflict in Ukraine, have caused production delays on a global scale for technology companies and other manufacturers.

In addition, the industry has gained increased geopolitical prominence as China accused the bill of threatening global supply chains and hampering international trade. 

These slowdowns can also be attributed to the deteriorating relationships between the 2 countries as a result of US House Speaker Nancy Pelosi's visit to Taipei and the disregard of Beijing's repeated warnings. Beijing launched large-scale military exercises in response, disrupting global supply chains.

The EU and Japan also plan to invest and expand in the CHIPS Act. US chip giant Intel recently announced its plans to invest tens of billions of euros in the EU as the bloc's member states want to reduce their reliance on Asia for semiconductors amid an international shortage.

“These funds are intended to help companies maximize 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”.

Read more: US officials order ban on exporting AI chips to China

The Chips Act commits a total of $280bn to hi-tech manufacturing and research and is designed to increase the US’s competitiveness with China.

The Chinese Embassy in Washington said Beijing "firmly opposed" the bill as it strikes as a "Cold War mentality."

Due to the global microchip shortage, the US economy lost last year $240 billion, and a war over Taiwan would be even more catastrophic for the US due to its reliance on one single supplier, Taiwan Semiconductor Manufacturing Company (TSMC).

The US crackdown on the sale of technology to China has already begun to have an impact, with the US chip designer Nvidia disclosing last week that it had been told by US officials to stop exporting two top computing chips for artificial intelligence work to China.