China files complaint with WTO against US chip export controls

China is fighting back against Washington's semiconductor wars by filing a complaint with the World Trade Organization (WTO) against US chip export controls, claiming they threaten global supply chains.

The Chinese Ministry of Commerce said in a statement it has filed a trade dispute concerning the measures, and aims to use the WTO's settlement mechanism to challenge these. It claimed this legal action was necessary to defend the country's legitimate rights and interests.

The sweeping new export controls were announced by the Biden administration at the start of October. These effectively put a block on the shipment to China of any advanced chips that might be used for AI or HPC applications, on the grounds of preventing Beijing from exploiting US technology for military purposes.

However, the export controls also bar the shipment to China of any equipment that might be used in the manufacturing of advanced semiconductors, including chips fabricated to a 16nm production process or smaller, and added more Chinese companies to its Unverified List of organizations banned from access to US technology.

As The Register reported at the time, these new measures were being seen as the opening shots in a new trade war between the US and China, one that threatens to impact global trade.

Beijing's view of these moves is that they are designed by the Washington government to stifle Chinese competition against the US semiconductor industry, which by 2019 had shrunk to about 11 percent of global fabrication capacity, down from about 40 percent in 1990.

According to the Wall Street Journal, China's Ministry of Commerce claimed the US has over recent years expanded its notion of what counts as necessary measures on the grounds of national security, and is now abusing export controls in a way that violates international trade rules and laws.

A spokesperson for the US Trade Representative's office has confirmed that Washington has received a request for consultations from China, according to Reuters.

It quotes the spokesperson as saying that "as we have already communicated to the PRC, these targeted actions relate to national security, and the WTO is not the appropriate forum to discuss issues related to national security."

But Beijing is unlikely to find much satisfaction from its representations to the WTO, at least not in the near term. Trade disputes can take many years to reach any kind of resolution; a disagreement between the US and EU over subsidies involving aircraft manufacturing lasted for 17 years before it was settled.

Washington has also shown its disdain for WTO judgements that go against it; a recent ruling found that American tariffs on steel and aluminium imports violated global trade rules, but the US government rejected the ruling and said it has no intention of removing the measures.

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For this reason, China already appears to be moving ahead with Plan B, which is a support package for its own semiconductor industry that could amount to more than 1 trillion yuan ($143 billion), according to Reuters, quoting anonymous sources within Beijing.

This support is likely to come in the form of subsidies and tax credits over the next five years, intended to encourage semiconductor research and China’s domestic chip production capabilities.

Such moves could be seen as China's counterpart to Washington's $52 billion US CHIPS Act signed into law in August, and the EU's €43 billion ($44.8 billion) European Chips Act, both of which seek to bolster semiconductor research and manufacturing in their respective territories. ®