US Chips Act fund recipients barred from expanding in China for 10 years

US chipmakers must agree not to expand capacity in China for a decade if they are to receive money from a $39bn federal fund designed to build a leading-edge domestic semiconductor industry, according to new commerce department rules.

The department on Tuesday called for applications for funds from the Chips Act passed by Congress last year, as it launched a landmark industrial policy programme designed to counter China.

In announcing the move, commerce secretary Gina Raimondo stressed that the department would be implementing guardrails to ensure the programme was not abused.

“Recipients will be required to enter into an agreement restricting their ability to expand semiconductor manufacturing capacity in foreign countries of concern for a period of 10 years after taking the money,” said Raimondo, who did not mention China by name.

She added that companies that received funding must also not “knowingly engage in any joint research or technology licensing effort with a foreign entity of concern that involves sensitive technologies or products”.

Congress passed the Chips Act in an effort to create an industry capable of mass producing leading-edge semiconductors, which are currently mostly made in Taiwan. In addition to measures to help American companies, the commerce department has taken measures to slow China’s chipmaking industry, including the imposition of sweeping export control regulations last October that will make it hard for Beijing to obtain advanced chips.

“Our goal is to make sure that the United States . . . is the only country in the world where every company capable of producing leading-edge chips will be doing that in the United States at scale,” said Raimondo.

A commerce department official said companies that received more than $150mn would have to return some money to the government when they made returns that surpassed original projections by an agreed threshold.

The official said the $39bn could potentially be leveraged to provide another $75bn in federally supported funding. “Total possible programme outlays . . . could be well over $100bn.”

Raimondo said companies would have to agree to other restrictions, including a prohibition on using the money for share buybacks or dividend payments.

“I also want to be clear that no chips dollars can be spent on stock buybacks,” Raimondo said. “This is about investing in our national security, not enabling these companies to use our money to increase their profits.”

Raimondo added that companies applying for more than $150mn would also have to outline in advance how they would provide affordable childcare for workers — a move that reflects concern that the US does not have enough skilled workers to ensure the goal of the Chips Act is met.

“This is a math problem. We need more people in the labour force. We right now lack affordable childcare, which is the single most significant factor keeping people, especially women, out of the labour force,” said Raimondo.

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