US finalizes rules on China curbs on companies getting chip funding
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The U.S. Commerce Department issued final rule implementing the 'national security guardrails' of the CHIPS and Science Act which aims to restrict expansion in China by semiconductor companies that will receive federal funds.
The rule elaborates on two main provisions of the statute âprohibiting CHIPS funds recipients from expanding material semiconductor manufacturing capacity in foreign countries of concern for 10 years; and restricting recipients from certain joint research or technology licensing efforts with foreign entities of concern.
"CHIPS for America is fundamentally a national security initiative and these guardrails will help ensure companies receiving U.S. Government funds do not undermine our national security as we continue to coordinate with our allies and partners to strengthen global supply chains and enhance our collective security," said Secretary of Commerce Gina Raimondo in a press release from the Department of Commerce.
Department of Commerce said the statute prohibits recipients from using the funds to construct or improve a semiconductor facility outside the U.S.; from investing in most semiconductor manufacturing in foreign countries of concern for 10 years after the date of award; and from engaging in certain joint research or technology licensing efforts with a foreign entity of concern which relates to a technology or product that raises national security concerns.
If the rules are violated the Department can claw back the entire federal financial assistance award, the agency noted.
It is the last regulatory obstacle before the department gives out over $100B worth of federal aid aimed to boost domestic chipmaking while constraining China's technological advance. The Chips Program Office is preparing to give out $39B in grants and $75B in loans and loan guarantees, as per a Bloomberg report.
The Department, however, removed a curb in the initially proposed terms. Previously, the agency defined significant transactions based on a monetary level of $100,000. The Department will now define "significant" as it weighs awards to individual companies rather than via rule-making, the report added citing a senior Commerce official who briefed reporters.
The removal came after the Information Technology Industry Council â an industry group which represents Intel (NASDAQ:INTC) Taiwan Semiconductor Manufacturing (NYSE:TSM) and Samsung Electronics (OTCPK:SSNLF), among others â raised its voice against the rule.
In addition, the Department expanded the final rule to limit the buildout scale of chipmakers' facilities in China, besides the original restrictions which are based only on production capacity, according to the official.
The Department said that the final rule ties expanded semiconductor manufacturing capacity to the addition of cleanroom or other physical space and defines material expansion as increasing a facilityâs production capacity by more than 5%. This is intended to capture even modest transactions to expand manufacturing capacity but allows funding recipients to maintain their existing facilities via normal course-of-business equipment upgrades.
The statute also limits on the expansion and new construction of legacy facilities in foreign countries of concern.
While the statute allows companies to expand production of legacy chips in the countries of concern in limited circumstances, Friday's rule classifies a list of semiconductors as critical to national security, subjecting them to tighter restrictions.
These include current-generation and mature-node chips used for quantum computing, in radiation-intensive environments, and for other specialized military capabilities.
The statute also restricts covered entities from engaging in joint research or technology licensing with a foreign entity of concern which is linked to a technology or product that raises national security concerns.
The CHIPS and Science Act was passed last year to address the manufacturing of semiconductors. As per the statute, the countries of concern are China, Russia, Iran, and North Korea.

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