Credit: JLStock/ Shutterstock Chinese chips makers face new American challenges.

China has taken yet another heavy blow in the ongoing Washington and Beijing tech war. The US government has further tightened chip possibilities in China after announcing that US companies will need licences to sell advanced technology like semiconductors to the nation.

The new rules will also affect foreign companies, as they will have to now apply for a license to use American tools to produce specific high-end chips to sell in China, CNBC reports.  

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China’s chip stocks fell dramatically on Monday following the announcement from the US Department of Commerce’s Bureau of Industry and Security (BIS).

One of the Chinese chip makers severely affected was Shanghai Fudan Microelectronics, falling by over 20% on Monday.

The Semiconductor Manufacturing International Corporation, China’s largest chip maker, was also affected by falling stocks and traded 3% lower on Monday.

The new rules imposed in this ongoing US-China chip war, which become effective this month, is the latest update in trying to quell Chinese companies’ access to key technology.

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“These updates will restrict the People’s Republic of China’s (PRC’s) ability to both purchase and manufacture certain high-end chips used in military applications and build on prior policies, company-specific actions, and less public regulatory, legal, and enforcement actions taken by BIS,” the US release said on Friday.

However, Josep Bori, research director in thematic intelligence at GlobalData, told Verdict that the new rules are less about quelling military applications and more about staying ahead in the great tech race.

“Although BIS frames its recent decision to restrict China’s ability to purchase and manufacture certain high-end chips used in ‘military applications’ and to ‘commit human rights abuses,’ we believe the ultimate target is broader,” Bori said

“This is about artificial intelligence (AI) dominance, which underpins what many call the 5th industrial revolution, thus [it is] ultimately about global economic leadership in the next few decades.”

GlobalData is the parent company of Verdict and its sister publications.