Measuring Raimondo's 'Big Step Forward' With China

But where does concern about national security end and ordinary commerce begin? The conclusion of the Commerce Department's readout indicates no change inpolicy:

But less than a month before, on August 9,President Joe Biden issued an executive order stating that the advance of semiconductor, microelectronics, quantum computing and artificial intelligence technologies in China constitutes a“an unusual and extraordinary threat” to the national security of the United States. Declaring it a“national emergency,” he ordered the establishment of procedures to restrictoutbound investments that could exacerbate this threat.

Aimed primarily at private equity, the executive order covers a broad range (not a“small yard”) of technologies. In addition, atinstigation, new and potentially damaging Dutch and Japanese sanctions on the Chinese semiconductor industry are coming into effect.

At the same time, however, thehas reportedly decided to allow Taiwanese and South Korean semiconductor makers including TSMC, Samsung Electronics and SK hynix to continue to ship equipment and other supplies to their factories in China.

As forcompanies, Micron Technology plans to invest another $600 million in its integrated circuit packaging facility in Xian, while Intel has established a technology development facility in Shenzhen.

With the assistance of local government, the Intel Greater Bay Area Innovation Center will provide technical assistance and marketing support for Chinese companies in fields that are likely to include AI, edge computing, server and PC applications and energy efficiency.

Obviously, the world's leading semiconductor companies do not regard China as“uninvestible” – except in the sense that thegovernment has made it difficult for them to invest in China. Anyway, for the time being they have been granted a reprieve in what for them is a crucially important market.

Speaking at the Aspen Security Forum in July, Intel CEO Pat Gelsinger said,“Right now, China represents 25% to 30% of semiconductor exports. Right, if I have 25% to 30% less market, I need to build less factories, right? You know, we believe you want to maximize our exports to the world.... You can't walk away from 25% to 30% and the fastest growing market in the world.... this is strategic to our future, we have to keep funding the R&D, right, the manufacturing, etc.”

This message appears to have gotten through to the Biden administration.

The Chinese must be pleased, but they are not dropping their guard. In the three months to June, 39% of Tokyo Electron's equipment sales were to China. That was up from 23% the previquarter, which was also the average for the previfiscal year. And China has reportedly ordered $5 billion worth of AI processors from Nvidia for delivery over the next several months.

While hedging against sanctions and shortages, China continues with its national campaign to develop the advanced semiconductor manufacturing equipment, design skills, computing capability and software needed to overcome the bans. Regular consultation with thewill not make this more difficult but it could, by keeping tempers in check, make it easier.

It is hard to escape the conclusion that Raimondo's visit was a success forbusiness, for China and for reducing economic risk in the run-up to theelections in November 2024. It does not appear to have done anything to increasenational security, but has left the door open for additional sanctions and activities aimed at“detecting emerging technology” in China.

Follow this writer on
Twitter: @ScottFo83517667