Chinese Tech Shares Tumble After U.S. Publishes New Export Rules

Last Updated on: 10th October 2022, 02:24 pm

Shares in Chinese tech giants Alibaba Group and Tencent tumbled on Monday, following the latest U.S. crackdown on China’s chipmaking industry to slow Beijing’s technological and military advances. The Biden administration published a sweeping set of export controls on Friday, including a measure to cut China off from certain semiconductor chips made anywhere in the world with U.S. equipment.

This announcement sent shockwaves throughout the Chinese tech industry, as the country relies heavily on the export of chip technology to fuel its growth. The Chinese tech giants are among the largest users of semiconductor chips in the world, and the loss of access to these chips could have a significant impact on their businesses. The Chinese government has responded by warning businesses against investing in the U.S. chip market, and the stock prices of Chinese tech companies have taken a hit as a result.

High-Tech Sector

China’s high-tech sector has been booming in recent years as the country ramps up its efforts to become a global superpower. But the country’s booming technology industry has come at a cost: Beijing has been blocking shipments of a broad array of chips for use in Chinese supercomputing systems that nations around the world rely on to develop nuclear weapons and other military technologies.

The U.S. Department of Commerce announced new export rules on Thursday that prohibit exports of chips that are used in systems that could be used to create nuclear weapons, missiles, or espionage. The rule will impact chips used in systems such as the Blue Gene/L supercomputer, which China is currently the world’s second-largest user of.

Shares in Chinese tech giants Alibaba and Tencent dropped sharply on Monday after the Biden administration published new export restrictions, which some industry experts say could also hit commercial data centers at Chinese tech giants. Shares in Alibaba and Tencent dropped 3.3% and 1.7%, respectively, by 0258 GMT on Monday. An index measuring China’s semiconductor firms tumbled nearly 6%, and Shanghai’s tech-focused board STAR Market declined 3.6%.

China’s Semiconductor Manufacturing International Corp (SMIC) has slumped 3.8% according to the share price index, NAURA Technology Group Co has dropped 10% below the daily limit, and Hua Hong Semiconductor Ltd has plunged 9.5%. The raft of measures could amount to the biggest shift in U.S. policy toward shipping technology to China since the 1990s. If effective, they could hobble China’s chip manufacturing industry by forcing American and foreign companies that use U.S. technology to cut off support for some of China’s leading factories and chip designers.

The measures, which were published by the U.S. Department of Commerce on Tuesday, could hit companies such as Intel, Qualcomm, Texas Instruments, AMD, and Samsung hard. They would require American and foreign companies that use U.S. technology in their products to cut off support for some of China’s leading factories and chip designers.

China’s chip industry may find its development more difficult as a result of new U.S. export restrictions. Citigroup analysts said in a note on Wednesday that the new rules, which prohibit U.S. companies from selling technology to China’s semiconductor companies that are deemed to be military-grade, will make it more difficult for Chinese companies to develop their advanced chip technologies.

But analysts say that Chinese companies will become more likely to purchase domestic equipment, especially for mature technology nodes, due to supply-chain security. The new rules could also have a negative effect on China’s semiconductor exports, but Citigroup believes that China’s overall semiconductor industry will remain robust.