The US Government is introducing new restrictions on certain tech companies, which will effectively bar them from building new facilities in China for at least 10 years.

The ban focuses on US tech companies which receive federal funding. It’s part of the Biden administration’s newly unveiled $50 billion package to boost the US semiconductor industry. Companies which receive government support will not be allowed to invest in China or develop “leading-edge technologies” there for a period of 10 years.

The US and other nations are facing a global shortage of microchips, which is slowing down tech production. The semiconductor industry is a critical sector, as these are the chips used in everything from mobile phones and laptops to cars.

With this major new funding plan, President Biden is aiming to build up the homegrown chips market and reduce reliance on China.

Explaining the purpose of the new US CHIPS and Science Act in a recent Whitehouse press briefing, Commerce Secretary Gina Raimondo said:

“We’re going to be implementing the guardrails to ensure those who receive CHIPS funds cannot compromise national security by — 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.”

Four key objectives for $50 bn CHIPS funding

In the recent press briefing, Gina Raimondo explained that the $50 billion CHIPS Act funding is to achieve four key objectives. These are:

  1. To establish and expand domestic production of leading-edge semiconductors in the US. At present, the country consumes over 25% of the world’s chips, while producing none.
  • To build a sufficient and stable supply of mature node semiconductors. The US currently produces 13%, but consumes at least 30%.
  • To invest in research and development, to safeguard the production of the next generation of semiconductor technology in the US.
  • To create thousands of new manufacturing jobs and over a hundred new construction jobs.

The plan is to invest $39 billion of the funding in domestic chip manufacturing, including large-scale investments in leading-edge manufacturing.

Companies will be able to apply for funding from February 2023. This is why the ban on opening factories and facilities in China has been announced, as the US Government wants to ensure that none of its earmarked CHIPS funding ends up overseas. There are other strict conditions to receiving the funding, and Raimondo promised that “the Department of Commerce intends to be vigilant and aggressive in protecting taxpayers money.”

The latest funding scheme comes just months after President Joe Biden announced a $280 billion investment in high tech manufacturing and scientific research. And earlier in the year, US officials banned tech firms AMD and Nvidia from selling AI chips to China. These developments appear to be a response to growing fears that the US is losing its technological edge to China. 

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