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The US is scrambling to avoid supply chain chaos after China imposed export restrictions

South Korea’s SK Hynix and Taiwan Semiconductor Manufacturing approved to supply factories in China.

The United States is scrambling to address the unintended consequences of its new set of export restrictions on China’s chip industry, which could unintentionally hurt the semiconductor supply chain, people familiar with the matter said.

Hours before the new restrictions went into effect, South Korean memory chipmaker SK Hynix said the US had given it approval to receive goods for its chip manufacturing facilities in China without additional licenses imposed by the new rules.

Separately, Taiwan Semiconductor Manufacturing Company (TSMC) has secured a year-long license to continue ordering U.S. chip-making equipment for its expansion in China, Nikkei Asia reported on Thursday.

The US government assured TSMC that the company could ship the equipment to a manufacturing facility in the Chinese city of Nanjing, the Nikkei report said, citing people familiar with the matter. TSMC did not immediately respond to a request for comment.

US President Joe Biden’s administration had planned to spare foreign companies operating in China, such as SK Hynix and Samsung Electronics Co, from the brunt of its new restrictions, but rules released on Friday did not exempt such firms.

As released, the rules require licenses before US exports can be shipped to advanced chip-making facilities in China, as part of a US effort to slow China’s technological and military advances.

And as of midnight Tuesday, vendors were also unable to support, service and ship shipments outside of the US to the China-based factories without licenses if US companies or individuals were involved.

As a result, even basic items like lightbulbs, springs, and screws that keep tools running may not be able to ship until licenses are granted to vendors. And without the up-to-the-minute support foundries needed, they could begin to shut down, a source said.

“Our discussions with the Ministry of Commerce resulted in an authorization to supply equipment and items needed for the development and production of DRAM semiconductors in Chinese facilities without additional licensing requirements,” SK Hynix said in a statement.

The company said the change would help avoid disruptions in the supply chain and the approval is valid for one year.

Samsung Electronics declined to comment.

Another source said the temporary solution is until a longer term solution can be worked out.

A spokesman for the U.S. Department of Commerce did not directly respond to a request for comment on the permits, but said the department hopes to receive input on the rule from stakeholders and may consider changes.

A White House spokesman also did not respond to a request for comment.

“If the permit was not granted, a large number of equipment and other suppliers would have had to withdraw their staff from the factories in China,” one of the sources said.

The US planned to review licenses for non-Chinese factories in China affected by the new restrictions on a case-by-case basis, but even if approved, it could delay deliveries. Licenses for Chinese chip factories are likely to be denied.

Intel Corp also operates chip factories in China.

Chinese chip factories are not expected to be given a grace period.

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