Federal Aid Recipients Face Limits on Chip Production Expansion in China: Report

The Biden administration has set the final guidelines restricting the growth of semiconductor companies in China that are beneficiaries of federal funds for establishing facilities in the U.S.

Before the Commerce Department disburses over $100 billion in federal aid to bolster U.S. chip production and curb China's tech progression, these regulations had to be in place, Bloomberg reports.

The Chips Program Office, poised to allocate $39 billion in grants and $75 billion in loans and loan guarantees, will restrict companies receiving these funds from significantly increasing their production or expanding their manufacturing footprint in China. 

The U.S. set the growth limits at 5% for advanced chips and 10% for older technologies, specifically those of 28 nanometers or more.

Commerce Secretary Gina Raimondo emphasized that the "Chips for America" initiative is rooted in national security. 

She stated that these measures will ensure that companies benefiting from U.S. government funds won't jeopardize national security. 

The goal is to fortify global supply chains in collaboration with international allies and partners.

Interestingly, the Commerce Department has relaxed a previously proposed stringent restriction. 

Initially, there was a proposal to cap investments in advanced capacity in China at $100,000, which would have effectively barred companies from enhancing output for chips more advanced than 28nm. 

The U.S. later removed the cap after feedback from the Information Technology Industry Council, representing significant players like Intel Corp INTC, Taiwan Semiconductor Manufacturing Co TSM, and Samsung Electronics Co SSNLF. These chip manufacturers will likely receive federal incentives for new U.S.-based facilities.

Some apprehensions permitting companies to expand their capacity in China, even after receiving U.S. federal grants, might empower China in the tech race against the U.S. Dmitri Alperovitch, chairman of Silverado Policy Accelerator, expressed concerns about funding new American facilities while simultaneously allowing these companies to bolster their operations in China.

Furthermore, the Commerce Department has introduced other measures, including a list of chips deemed critical to national security, facing stricter regulations. 

The department has also expanded the definition of semiconductor manufacturing to include wafer and substrate production.

Companies that breach these regulations risk forfeiture of the total amount of federal grants. 

Earlier, CEOs of major semiconductor companies, including those from Intel and Qualcomm Inc QCOM, planned a visit to Washington to discuss China policies, market conditions, and other pertinent issues affecting their industries. 

The discussions aimed to address the potential impacts of stricter embargoes on the Chinese semiconductor sector.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.