The U.S. unveiled new restrictions on China’s access to vital components for chips and AI, escalating a campaign to contain Beijing’s technological ambitions but stopping short of earlier proposals that would have sanctioned more key Chinese firms.

The Department of Commerce slapped fresh curbs on the sale of high-bandwidth memory chips made by U.S. and foreign companies, likely affecting South Korea’s SK Hynix Inc. and Samsung Electronics Co. as well as Idaho-based Micron Technology Inc.

The agency also expanded existing controls on chipmaking gear, including products made by U.S. firms at foreign facilities, but with carveouts for key allies, such as Japan and the Netherlands. It also blacklisted 140 additional Chinese entities accused of acting on Beijing’s behalf, affecting a handful of suppliers to Huawei Technologies Co. That includes gear maker SiCarrier as well as chipmakers Qingdao Si’En, SwaySure, and Shenzhen Pensun Technology Co., or PST.

The long-in-development rules fell short of earlier proposals, Bloomberg News reported last week, setting off a widespread rally among semiconductor supply chain players from Tokyo Electron Ltd. in Asia to ASML Holding NV in Europe. Specifically, the Biden administration elected not to add to the entity list two firms that they had previously considered: Shenzhen Pengjin High-Tech Co., which makes semiconductor equipment, and ChangXin Memory Technologies Inc., which is trying to develop AI memory chip technology.

The administration’s goal, building on years of evolving trade restrictions, is to slow China’s domestic development of advanced semiconductors and artificial intelligence systems that may help its military. The U.S. “will restrict the PRC’s ability to produce technologies key to its military modernization or repression of human rights,” the Bureau of Industry and Security said in a statement.

China strongly opposed the new chip restrictions, criticizing the U.S. move as economic coercion that seriously threatened the stability of global supply chains. “The U.S. continues to generalize the concept of national security, abuses export control measures, and implements unilateral bullying,” the Ministry of Commerce said in a statement Monday. “China will take necessary measures to resolutely safeguard its own rights and interests.”

Biden officials debated the measures and negotiated with foreign counterparts for the better part of a year. Major chip companies — including U.S. gear makers Lam Research Corp., Applied Materials Inc. and KLA Corp., as well as rivals Tokyo Electron and ASML — spent months lobbying their respective governments, urging an approach that preserves what each sees as fair access to the lucrative China market.

The controls unveiled Monday impose restrictions on the sale to China of two dozen types of manufacturing equipment and three software tools, with exemptions for countries that can impose such controls themselves, according to a senior administration official. The idea, the official said, is to create a pathway for those countries — like Japan and the Netherlands — to enact comparable curbs. Neither Tokyo nor The Hague has publicly said they will do so.

The scope of the measures is “a near-term positive relief to investor concerns of escalating export controls,” Citi analyst Kevin Chen wrote last week. “Still, there could be future restrictions under the Trump administration next year.”

The rules do cover the foreign facilities of U.S. companies, using a provision known as the foreign direct product rule, or FDPR. That authority allows Washington to control goods made overseas that use even the tiniest amount of U.S. technology.

The use of FDPR, even with exemptions, is an effort to prevent U.S. toolmakers from avoiding trade restrictions by locating their manufacturing in other countries. A recent report from the Center for Strategic and International Studies, a Washington-based think tank, found that U.S. gear suppliers have increasingly exported products to China from non-U.S. countries since 2016, and especially since 2019.

“This action is the culmination of the Biden-Harris Administration’s targeted approach, in concert with our allies and partners, to impair the PRC’s ability to indigenize the production of advanced technologies that pose a risk to our national security,” Secretary of Commerce Gina Raimondo said in a statement. “No Administration has been tougher in strategically addressing China’s military modernization through export controls.”

The new controls restrict the sale of high-bandwidth memory chips — essential AI components that handle data — and are in addition to existing curbs affecting advanced logic chips, which serve as the brains of devices. The memory rules apply to HBM2 and more advanced chips, a senior administration official said, and use FDPR to control both U.S. and foreign firms. The global leader in providing HBM chips is South Korea’s SK Hynix, followed by Micron and Samsung.

There are exemptions to the rule, the official said, that allow Western companies to package HBM2 chips in China. Those exemptions are limited to packaging activities that present low risk of technology being diverted to Chinese firms, according to the official.

(With assistance from Foster Wong.)

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