TMTPost -- Shares of Intel Corp. and Advanced Micro Devices Inc. (AMD) plunged around 5.2% and 4.2%, respectively, on Friday, underperforming the market as the U.S. stock market benchmark S&P 500 closed nearly 1.5% lower and PHLX Semiconductor Index, an equity benchmark for semiconductor stocks, fell 3.3%.  Stock selloff of two American chipmakers came after China was reported to take further counter tightening curbs on semiconductor industry by the U.S. and its allies.

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The Chinese government has directed the largest telecom carriers in the country earlier this year to phase out foreign chips that are core to their networks by 2027, the Wall Street Journal reported on Friday, quoting people familiar with the matter. The direction and deadline were given by the Ministry of Industry and Information Technology (MIIT) and aim to accelerate efforts to halt the use of key chips in China’s telecom infrastructure, according to the report.

The ministry, which oversees information technology, mail, telecommunications and software industry, was said to order state-owned mobile operators to develop timetables to replace semiconductor offerings in their network made by foreign companies. Such effort will hit Intel and AMD most since these companies have provided large number of the core processors used in networking equipments either in China or in the world these years, the sources said.

MIIT didn’t responded to the report. Other media outlets didn’t verify the reported order. If the order were accurate, that is the latest sign that China is ramping up efforts to reduce dependence on high-tech orignated from the West.

China adopted the newly-effective procurement guidelines to replace semiconductors made by Intel Corp. and Advanced Micro Devices Inc. (AMD) from government personal computers and servers with local alternatives, the Financial Times reported last month. The new guidelines,  introduced by the Ministry of Finance (MOF) and the Ministry of Industry and Information Technology (MIIT) on December 26, will also impact Microsoft's Windows operating system and foreign-made database software, according to the report. Government agencies above the township level have been reportedly ordered to purchase devices equipped with “safe and reliable” processors and operating systems.

A Bloomberg report last month said MIIT this year has quietly asked EV manufacturers spanning from BYD Co., Ltd, the world’s No.1 new energy vehicle company, to Volvo’s parent Zhejiang Geely Holding Group to significantly increase their purchase from local auto chipmakers.The ministry, which oversees information technology, mail, telecommunications and software industry, has previously set an informal target for automakers to source a fifth their chips by 2025, and now takes further step with direct instruction to require these firms to try their best to avoid semiconductors made by foreign companies, signaling its growing dissatisfaction with progress of the local purchase of chips, according to the report.

The reported new instruction effectively forces foreign semiconductor companies to produce their chips through a Chinese foundry such as Semiconductor Manufacturing International Corp. (SMIC). As an evidence of the directive, the report cited an overseas  bidder which failed to secure a contract of a major Chinese brand even though the bidder offered a price it estimated was 30% lower than the winner.  

China firmly opposes the latest revision of the U.S. export controls as it seriously dampened the mutually beneficial cooperation between Chinese and foreign enterprises and damages their legitimate rights and interests, a spokesperson of China’s Ministry of Commerce (MOFCOM) responded to the U.S. government’s revision of rules last month and went into effect on April 4. The new rule aims to make it harder for China to access U.S. artificial intelligence (AI) chips and chipmaking tools, less than half of a year after the original rules introduced. The abuse of the concept of national security, wanton modification of rules and implementation of strict restrictions by the United States have not just created additional obstacles for Chinese and American companies to carry out normal economic and trade cooperation, increased their compliance burden, but also led to huge uncertainties of the global semiconductor industry, said the MOFCOM spokesperson.