How Chinese companies respond to the new U.S. regulations on HBM? Experts say relevant enterprises are already mentally prepared and have contingency plans

On the 2nd, local time, the U.S. government announced new export control measures on semiconductors to China, which have attracted significant attention from the global industry. The measures further tighten export controls on semiconductor manufacturing equipment, storage chips, and other items to China, and add 136 Chinese entities to the export control entity list. Several South Korean media outlets noted that for the first time, the U.S. has included high-bandwidth memory (HBM) used for artificial intelligence (AI) in its export control measures against China, while South Korean companies are major manufacturers of HBM, and related exports to China are expected to be affected. Industry insiders interviewed by the Global Times believe that the U.S. restrictions on HBM are targeted suppression of China's semiconductor and AI industry development, and relevant companies have already made psychological preparations and plans. In the future, China's semiconductor industry should "abandon illusions" and strengthen independent research and development to reduce the risk of being "choked."

"SK Hynix and Samsung Electronics Can't Escape a Calamity"

"SK Hynix and Samsung Electronics can't escape a calamity." The Korea Herald reported on the 3rd with this headline, stating that currently only South Korea's SK Hynix and Samsung Electronics, along with the U.S. company Micron, produce HBM chips, but Micron is no longer supplying China. In 2023, China's Cybersecurity Review Office conducted a cybersecurity review of Micron's products sold in China. The review found that Micron's products posed significant cybersecurity risks, affecting the supply chain of critical information infrastructure in China and impacting national security. As a result, the Cybersecurity Review Office concluded that Micron's products did not pass the cybersecurity review. The Korea JoongAng Daily reported that thereafter, Micron ceased exporting HBM chips to China.

An industry insider interviewed by the Global Times on the 5th explained that HBM is formed by stacking multiple DRAM (dynamic random-access memory) chips, offering advantages such as high bandwidth, high storage density, low power consumption, and compact size, which play an important role in improving the efficiency of large model training and inference. In recent years, with the continuous boom of generative AI, the market demand for high-performance AI chips has surged, directly driving the explosive demand for HBM integrated within such AI chips.

Currently, most HBM products produced by SK Hynix and Micron are supplied to the U.S. chip giant NVIDIA, while China has been importing some older HBM products produced by Samsung. The Singapore Lianhe Zaobao reported that due to the semiconductor industry's heavy reliance on U.S. original technology, both SK Hynix and Samsung Electronics are constrained by this export control.

On the 3rd, South Korea's Ministry of Trade, Industry and Energy stated that based on the U.S. export control measures against China and subject to the "Foreign Direct Product Rule," South Korean companies producing HBM will also be somewhat affected, but in the future, they can minimize the impact by converting to export methods permitted by U.S. regulations. Lianhe Zaobao believes that this U.S. measure only targets HBM exported directly to China and does not include HBM packaged with other chips, and it is expected that South Korean companies will adjust their export methods according to U.S. regulations to reduce potential negative impacts

"The Chinese market is too large; they will not give up"

Although the latest U.S. regulatory measures do not affect Japanese companies, Japanese media are concerned that the scope of these restrictions could expand at any time with little notice. According to the Nikkei, HBM has been included in the export control list for the first time and is subject to the "Foreign Direct Product Rule," meaning that high-bandwidth memory and semiconductor equipment produced in third countries outside the U.S. will also be considered U.S. products and subject to control if they meet certain conditions.

On the 5th, the Nikkei Asia reported that as U.S. export controls have increased the difficulty of cross-border chip transactions, Japanese semiconductor distributors are seeking to deepen their entry into the Chinese market. Japan's semiconductor manufacturing industry once ranked first in the world but was later hit by trade frictions with the U.S. With the rapid growth of the global semiconductor market, Japan is expected to achieve a revival in the chip industry. According to data from U.S. research firm Gartner, the market share of Japan's top five semiconductor trading companies was 34% in 2013 and has exceeded 50% by 2023.

Gu Wenjun, chief analyst at ICwise Research, told Global Times reporters on the 5th that the U.S. export control measures on semiconductor exports to China mainly impact Chinese semiconductor equipment companies and semiconductor production lines. However, ICwise Research has also found that semiconductor trading companies, including those from Japan, are studying the sanctions imposed by Biden and Trump on China's semiconductor industry and actively seeking opportunities in the Chinese market. Some Japanese semiconductor equipment manufacturers have seen their trade volume in China reach new highs in recent years. Gu Wenjun stated, "The Chinese market is too large; they will not give up. U.S. companies cannot sell (to China), but companies from other countries are selling."

Domestic industrial chain and enterprises are prepared

South Korean media believe that the U.S. is blocking the supply of core semiconductor components to prevent China from developing independently. However, Japanese media indicate that "the short-term impact is limited, but it may accelerate the localization process in China in the long term." The Nikkei believes that China will definitely accelerate the localization of HBM in the future, and some Chinese semiconductor companies are working hard to improve their production systems for mass production of HBM.

Gu Wenjun told reporters that the export control measures demonstrate the Biden administration's focus on advanced processes and cutting-edge technologies, purposefully targeting China's semiconductor industry. He also noted that since the introduction of these export control measures was anticipated, domestic industrial chains and enterprises have already made preparations.

The Wall Street Journal cited industry analysts stating that the months-long pause from the drafting of the rules to their release on the 2nd of this month gave Chinese entities time to procure semiconductors and machinery that may be restricted. Data from the China Business Industry Research Institute shows that from January to October, China's semiconductor imports increased by 15% year-on-year.

A recent report from Zhiyan Consulting states that "domestic HBM is in a breakthrough period from 0 to 1." The report indicates that some domestic companies have already laid out core upstream segments of the industrial chain through independent research and development and acquisitions, achieving substantial breakthroughs, including two semiconductor equipment companies that have been included in the "entity list." Gu Wenjun said that in the face of the "restrictive network" woven by the U.S. government, China's semiconductor industry must identify gaps and focus on tackling challenges. The companies most affected by these sanctions are some small and medium-sized enterprises, and providing support to these companies can minimize the impact.

Article authors: Zhao Juechang, Wu Qian, Source: Global Times, Original title: "How Chinese Companies Respond to New U.S. Regulations on HBM? Experts Indicate Relevant Enterprises Are Prepared and Have Contingency Plans"

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