China’s Chip Stocks Severely Crumbles Due to U.S Export Controls

Last Monday, China's chip stocks diminished and lost billions after the United States sanctioned export restrictions on Beijing's high-end military technology plans.

The Semiconductor Manufacturing International Corp, China's current largest chip producer, dropped 4% in Hong Kong stocks last Monday, while Hua Hong Semiconductor Limited, a Shanghai-based semiconductor company, slumped 9.4%, and Shanghai Fudan Microelectronics plummeted down to 20.2%.

Additionally, US chip manufacturers AMD and Nvidia were impacted as their shares fell during Friday's trading session.

According to the Chinese Ministry of Foreign Affairs Spokesperson Mao Ning, she said that “The U.S. has been abusing export control measures to wantonly block and hobble Chinese enterprises”. The Chinese Foreign Minister was particularly enraged by U.S president Joe Biden’s actions, which caused the country's chip stocks to lose billions of dollars.

“Such practice runs counter to the principle of fair competition and international trade rules,” she added. “It will not only harm Chinese companies’ legitimate rights and interests, but also hurt the interests of U.S. companies.”

“This will not only be negative to the Chinese semiconductor industry but also indirectly impact global semiconductor makers’ business opportunities longer term,” Citigroup analysts along with Laura Chen wrote in a report.

The decline in Chinese chip stocks may actually have a global impact on the industry. Since markets in countries such as Japan, South Korea, Taiwan, and Malaysia are closed on Monday, they will be able to respond on Tuesday.

The Semiconductor Index of the Philadelphia Stock Exchange also dropped 1.4%, adding to Friday's 6.1% decrement. This year, the index is down more than 40%. Semiconducting machinery and equipment major corporations led the day's losses, with Applied Materials Inc. falling 4.1%, Lam Research Corp. collapsing 6.3%, and KLA Corp. falling 3.1%. Advance Micro Devices fell 3.1%, while Marvell Technology dropped 4.9%.

The United States government also previously placed Chinese firms Huawei and SMIC on a ban list, mandating suppliers to obtain a permit before attempting to sell to the tech companies aforementioned.

According to a source, the two companies obtained the licenses last year in order to conduct several billion dollars in business transactions. It remains unclear how destructive the new U.S restrictions will be to current and future business.