US sanctions help vaporize chunk of Chinese chip barons’ wealth

Beijing's 'military-civil fusion' doctrine suffers multi-billion dollar blowback

US chip sanctions against China have tag-teamed with a weaker economy to vaporize a chunk of the wealth held by the Middle Kingdom's richest semiconductor business owners.

The cumulative wealth of China's top 100 money-making chip barons declined 28 percent in 2022 versus last year, South China Morning Post reported, citing a survey by Chinese-language site Ijiwei.com. At the same time, the number of silicon tycoons in China with more than 10 billion yuan ($1.43 billion) in personal wealth fell to 17 in 2022 from 22 the previous year.

It's a reversal of fortunes for China's chip magnates, who have amassed wealth in recent years due to the government's push for self-sufficiency in semiconductors.

This wealth has diminished in part because of the strong ties between China's government and industry. These ties are mandated by the country's "military-civil fusion" doctrine, where private firms must share their technologies with its military.

Across the Trump and Biden administrations, the US government has cited this doctrine as a primary reason for growing trade restrictions against Chinese firms over the past two years. In October, the White House cited America's national security and foreign policy interests as the drivers for new export restrictions on advanced chips and chip-making tools to China.

Chinese chipmakers have reportedly sounded the alarm over the recent US export restrictions on state-of-the-art chip technology, saying the trade bans will be extremely harmful to their businesses. It is worth noting, however, that the American sanctions are expected to have a broader impact across the globe, raising prices for consumers and businesses due to an increasingly fractured supply chain.

Things have gotten even worse for some silicon firms in the Middle Kingdom since the new sanctions were introduced. Last week, YMTC, China's biggest domestic flash memory supplier, was placed alongside 35 other local operations on the US Department of Commerce's so-called Entity List .

The American blacklist requires impacted companies to receive a special license to import certain US technologies. For YMTC, this means it isn't just blocked from accessing advanced chip-making equipment in tools, it's also banned from procuring other kinds of supplies it needs to produce flash memory chips, unless it obtains a special license from the US. In some cases that'll mean when Satan goes to work on a snowplow.

Analysts said being placed on the Entity List could hinder YMTC's production capabilities, and it may even be forced to exit the market for 3D NAND, a crucial technology for advanced storage and memory devices. US restrictions against YMTC prompted Taiwanese research firm TrendForce to dramatically revise its 2003 growth rate projection for 2023, from an expected 60 percent year-over-year increase to a 7 percent decline.

The other issue troubling Chinese chipmakers is that the country's economy has taken a significant hit from the COVID-19 pandemic as well as plummeting global demand. Economists have projected that China's economic growth will range between 2.8 percent and 3.2 percent, a level not seen since 1976. This has prompted plans by Beijing to prioritize stabilizing the economy next year.

Whether the People's Republic of China can boost its economy enough to counteract the impact of US sanctions remains to be seen. White House officials are curious to see if China will change its tune around policy when a new economic minister is appointed early next year. ®