Event:

On Monday, December 2, U.S. time, the Biden administration announced the expansion of restrictions on the export of advanced technology to China, and introduced extensive restrictions on China's chip industry and major companies.

Opinion:

Once a year for the past three years, the scope of the first two sanctions has been updated and upgraded. According to the website of the U.S. Bureau of Industry and Security (BIS), this export restriction is the third new export control regulation issued by BIS in three years, which restricts China's advanced process chips and related equipment, the first two in October 2022 and October 2023. Compared with previous years, when the ban was introduced in October, this year's export restrictions were postponed to early December, which we believe may be due to the impact of the US election. It can be seen that this export restriction is not a new measure taken by the United States, but a routine and routine operation every year. After the first large-scale export restrictions to China in 2022, the policy of the following two years has been to update and upgrade the existing list and restrictions in this direction to ensure that "it is difficult for China to obtain and produce chips that can enhance its artificial intelligence for use in military operations" to protect U.S. national security. It is worth noting that this export restriction may be the last large-scale suppression and restriction measures against China during Biden's tenure, mainly to show his toughness on China during his tenure and to try to leave more political legacy.

HBM and semiconductor equipment are the main limiting directions, mainly for the development of Chinese artificial intelligence. The restrictions include three parts: first, HBM (High Bandwidth Memory) chips shipped to China, mainly for high-performance applications such as artificial intelligence training; the second is semiconductor equipment companies and design software companies; The third is to impose restrictions on semiconductor equipment produced by countries other than the United States and shipped to China, mainly in Singapore, Malaysia, and U.S. allies such as the Netherlands and Japan. The latter two restrictions are the first of their kind. In terms of the number of specific companies, the companies included in the entity list involve more than 20 semiconductor (design and production) companies, 2 investment companies, and more than 100 equipment companies, totaling 140 companies. Technology

restrictions and suppression in China are an inevitable trend, and the "FDP Rules" in this round of restrictions may have a more far-reaching impact on restricting equipment and products exported to China from third countries. Judging from the above facts, restricting China's scientific and technological progress, especially artificial intelligence, and other frontier fields to achieve breakthroughs is a policy direction that the United States has long determined in recent years. Among the three restrictions, the United States has newly used the foreign direct product rule to impose long-arm jurisdiction over third-country products exported to China, that is, all goods containing American-made chip products will also be restricted from being shipped to China unless the United States applies for a license. If this clause is strictly enforced, almost all advanced semiconductor equipment and products could face the long-arm jurisdiction of the United States, resulting in a supply chain crisis. At present, in addition to the United States, the countries that export more semiconductor equipment and materials to China are the Netherlands and Japan, both of which are allies of the United States, and under pressure from the United States, they have agreed to an "agreement in principle" to restrict exports to China, and the United States has been exempted from this restriction. From this point of view, international giants such as ASML and Tokyo Electron may still be able to export to China through other means in the coming period, but in the long run, China will face increasingly stringent sanctions on chip manufacturing, core equipment, materials, etc., and the above directions will become an important area for domestic substitution.

Industry Rating and Investment Advice: The U.S. restrictions and suppression of China's semiconductors are a long-term definite trend, and this round of restrictions has other political considerations of the Biden administration, but the scope and depth of restrictions have been increased compared with the previous two BIS bills. In this context, the urgency of domestic substitution of China's semiconductor core technology links and equipment is increasing, policy support, industry integration or further acceleration, superimposed downstream consumer electronics and other industries to recover the boom cycle, maintain the industry's "recommended" rating. It is recommended to pay attention to NAURA (002371. SZ), Saiteng Co., Ltd. (603283. SH), Zhichun Technology (603690. SH), Tuojing Technology (688072. SH), Shengmei Shanghai (688082. SH), Huahai Qingke (688120. SH), Zhongke Flying Test (688361. SH）。

Risk warning: domestic advanced process and core equipment technology breakthroughs are less than expected; The ramp-up of domestic advanced process capacity and yield is less than expected; U.S. technology restrictions on China escalate; policy uncertainty for the new U.S. president; Data and Information Citation.