| By Xuan Zhong |

The South Korean government announced that the US government will allow its largest chip makers, Samsung Electronics and SK Hynix, to continue to import U.S. chip manufacturing equipment for their factories in China without a specific end date for the import restriction waivers.  However, major technological upgrades are still prohibited. It is unclear whether TSMC, another Asian chipmaking giant, has received any waiver or approval notifications.

The U.S. Department of Commerce CHIPS Program Office developed a series of “national security guardrails” as part of its federal incentives for semiconductor manufacturing in China. These guardrails restrict investments in China by companies receiving the incentives. If an incentive recipient increases its production capacity in China by more than 5% or introduces equipment into its Chinese factories that produces chips that are more technologically advanced than traditional semiconductors, then the subsidies it receives will be clawed back and its imports of advanced manufacturing equipment from the U.S. will be restricted.

For these Korean companies, their supply chain security and profit prospects are stable in the short term, but continuing to operate in China remains problematic. These companies must navigate a narrow path between continuing to operate legacy production systems and upgrading to newer production technologies. Companies that continue doing technology business in China need to be careful not to over-expand their production capacity in China, leaving the production technology in their Chinese factories lagging behind the more advanced production at factories in countries not subject to CHIPS Act technology restrictions.

Photo Credit: SeongJoon Cho/Bloomberg News