US sanctions overhaul will squeeze China hard

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By Robyn Mak Washington is tightening its export controls using a sledgehammer. As part of the latest flare-up in Sino-American tensions, the U.S. Commerce Department last month issued new rules to extend sanctions to the subsidiaries of companies already on its blacklist, known as the Entity List. That will make it harder for Chinese firms to use affiliates to buy off-limits technology, and it may slow China's chip advances.Known as the Affiliates Rule, entities at least 50% owned, directly or indirectly, individually or in aggregate, by companies blacklisted by the U.S. government are now automatically subject to the same restrictions as their parent. The amendment includes provisions that will also subject a larger number of Chinese companies to Washington's harshest sanction: the Foreign Direct Product Rule, which can prevent the sale of any product made using American technology, including in a foreign country. On paper, Washington is plugging a loophole: its policymakers have complained that Huawei , Beijing's designated chip champion, wove a complex web of expanding subsidiaries and affiliates to bypass U.S. export controls. For the past few years, the tech giant and its peers were supposed to be cut off from American technology as well as anything made with American tools . Yet Huawei recently debuted its made-in-China AI processors , some of which featured restricted components from Taiwan's TSMC TWSE:2330 and South Korea's SK Hynix KRX:000660 and Samsung Electronics KRX:005930, semiconductor research outfit TechInsights found. The fallout from the latest U.S. measures will be intense. For a start, the rules could ensnare "thousands" of China-linked entities across 100 jurisdictions that have never appeared on a government list before, accordingto risk analytics firm Kharon. Nexperia is just one such example: in 2019, the Netherlands-based auto chips specialist was acquired for $3.6 billion by a Chinese group that was subsequently blacklisted. The 50% rule ultimately resulted in the Dutch government seizing control of Nexperia this week. Now European and American carmakers are caught in the crossfire because China has banned the export of products made in the People's Republic by Nexperia and its subcontractors.Global companies may become more selective about who they sell to. In a significant shift, the U.S. rules put a heavy compliance burden o...

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