The technology war between the United States and China is intensifying, and the semiconductor industry is the first to bear the brunt. On December 2, the U.S. Department of Commerce, citing national security as the reason, issued the third wave of export control measures against China in three years, adding 140 Chinese semiconductor-related companies to the control list. No U.S. supplier may sell products to these companies without special permission from the U.S. government.
The new control measures also prohibit the export of high-bandwidth memory chips to China, as well as 24 manufacturing tools and three software to prevent China from obtaining advanced storage chips and semiconductor manufacturing equipment. It is worth noting that the new measures expand the scope of application of the “Foreign Direct Product Rule”. As long as the production process of the product uses U.S. technology, software or equipment, even products produced by companies outside the United States must comply with U.S. export control regulations.
Countries and regions affected by the foreign direct product rule include Singapore, Malaysia, South Korea, Taiwan and Israel. Japan and the Netherlands have been exempted because they have led the production of advanced chip manufacturing equipment with the United States.
China criticized the U.S. suppression for violating market economy principles, undermining international trade rules, and damaging the stability of the global industrial chain and supply chain. Even so, the next day, China’s Ministry of Commerce announced that it would ban China and other countries from exporting key semiconductor materials, including gallium, germanium, and antimony produced in China, to the United States.
This is the first time that Beijing has copied the extraterritorial jurisdiction of US and European sanctions, extending domestic laws beyond its borders, and the first time that it has directly responded to US restrictions on advanced technology by restricting the export of strategic minerals. Both sides use extraterritorial jurisdiction to ensure that the control measures are watertight, but it has also affected other countries.
In 2018, then-US President Trump ignited the US-China trade war, which later spread to other areas, including the emerging technology war. Many multinational companies have adopted a “China plus one” strategy to invest in countries surrounding China to diversify risks and improve the resilience of the supply chain. Similarly, Chinese companies have also “gone out” to explore the regional market.
Southeast Asian countries have benefited from this, including Singapore. Many technology giants in the United States, China, and Europe have set up bases or R&D centers in Singapore, allowing our country to make good use of the technology and funds of these giants to build a technology ecosystem.
In 2022, when the Biden administration launched the first wave of semiconductor restrictions on China, our country’s fixed asset investment commitment hit a record high of 22.5 billion yuan; although it fell to 12.7 billion yuan the following year, it was still higher than the Economic Development Board’s medium- and long-term target of 8 billion to 10 billion yuan per year. Among them, investment in semiconductors increased significantly.
In the re-layout of the global supply chain, our country plays the role of a transit station and a bridge. Singapore’s strategic location, technological ecosystem, close cooperation between the government and enterprises, and proper protection of intellectual property rights have attracted global technology companies to invest here. Although Singapore is small in size and lacks scientific and technological talents, the clustering effect of technology giants has pushed our country to climb higher in the value chain and increased our confidence in leading the development of artificial intelligence.
A study shows that since the United States tightened semiconductor exports to China in 2022, China has stepped up its purchase of semiconductor equipment around the world, and suppliers have become increasingly dependent on the Chinese market. Among the total turnover of the world’s four largest semiconductor suppliers, China’s sales share increased from 17% in the fourth quarter of 2022 to 41% in the first quarter of 2024. These four giants have investments in Singapore.
The specific details of the implementation of the extraterritorial jurisdiction measures introduced by China and the United States in the semiconductor industry are still unclear. However, it brings uncertainty to local related foreign investment. Market changes may cause large multinational companies to reduce or even withdraw from Singapore, affecting our country’s technology ecosystem and economic transformation.
Major countries have resorted to extraterritorial jurisdiction to reshape the rules of market operation and increase the pressure on small countries to choose sides. For companies, this further disrupts the global supply chain and production chain and increases transaction costs, including compliance costs. It is a daunting challenge for companies to strike a balance between retaining China as an important market and complying with US regulations.
In this geopolitical environment full of variables, the government and companies must step up cooperation and respond flexibly to maintain and strengthen the resilience of our technology ecosystem and mitigate the spillover impact of the Sino-US technology war. At the same time, Singapore should make full use of the advantages of European, American and Chinese technology giants investing here to enhance its own technological strength so as to play a more effective role in matchmaking. This will not only bring economic benefits, but also have great strategic significance.
