New member here. Been following this thread and impressed with the level of knowledge and expertise in following the developments. I work in regulatory compliance for technology products (not semiconductors, but subject to the same controls) which touches on export control regulations which I know is a hot topic given the developments so I wanted to share my insights on the situation (common in the industry) and how it may impact the semiconductor industry in China.
Export Administration Regulations (EAR) aka export controls are basically regulations from the US Commerce Department that allow them to control the export of selected products that contain US content. US content is basically anything of US origin whether material (e.g. parts, labor, blueprints, code, manuals, etc) or virtual (patents, other IP) that goes into a product. Typically, the controls only kick in when US content is 25% of the product or higher regardless of where it originates from, but they can tighten the screws by going down to 0% which basically means you are screwed if any of the product touched any American or US soil (this will be important later). This is how the US stopped the Dutch/ASML from exporting EUV to China due to the laser being US content from Cymer, and how they forced TSMC to cutoff Huawei due to the presence of US tools in the TSMC production process.
So it may seem latest round of export control tightening if enforced fully will be the final blow to US SME multinationals and Chinese end users since basically those products can't be sold from not only the US, but also their OUS companies or subsidiaries of US companies (LAM Malaysia) if they use US content in their output (hence the Commerce Department letter to LAM Malaysia re the export control changes). However, if a product contains no US content, the US government cannot control its sale by law unless they plan to nationalize the company. These products are referred to as "EAR-free", essentially meaning they are de-americanized and can be sold to whomever and used for whomever you want. Going to zero US content is far from easy though, its not as simple as just offshoring production. It requires offshoring the entire product lifecycle and supply chain such that from start to finish it bypasses America/Americans. In other words, all the patents, labor, blueprints, IP, parts, manuals, code, maintenance, install, etc is done without touching American soil or American hands.
I can't speak to what goes on inside the management of those SME companies, but I can't imagine they would take such a hit lying down and willing accept government restrictions. If they want to keep their leading position in the industry of which the Chinese market is key, they will have to de-americanize their operations to bypass export controls. Otherwise their market share will erode significantly in the next few years. It will be interesting to see how the companies respond based on their future capital spending, geographic allocation and financial projections to these change of events but I can't imagine they haven't prepared for this eventuality. It will be the greatest of ironies if US attempts to reshore the SME industry and cutoff China end up resulting in the SME supply chain offshoring to cut out the US.
Anyways, none of us can predict the future so China will need to continue to work on its SME development to enhance its sufficiency and be in a position of strength. But it would be foolish to close the door to the multinational SMEs if they can bring something to the table outside of US oversight. There is no greater victory then turning your opponent to your side. My 2 cents.
