China hits back at US chip sanctions with WTO lawsuit

China has hit back against sweeping US export controls on computer chips by filing a lawsuit with the World Trade Organization, escalating the tech war between the two countries.

The US Department of Commerce introduced sanctions in early October designed to make it harder for China to buy, or develop, advanced semiconductors.

In a brief statement on Monday, China’s commerce ministry said the WTO complaint was a legal and necessary measure to defend its “legitimate rights and interests”.

It added that Beijing had referred the US export control measures to the WTO dispute settlement mechanism but did not provide further details.

The move comes just weeks after US president Joe Biden and his Chinese counterpart Xi Jinping used their first in-person meeting as leaders to signal a joint desire to improve ties between the world’s two biggest economies after relations plunged to a multi-decade low.

The export controls were aimed at complicating China’s efforts to use high-end US technology for military applications, such as nuclear warhead modelling and hypersonic weapons production.

The measures prevent US companies from exporting technology to Chinese groups engaged in producing high-end chips, which are used in almost every modern device, including the latest electric vehicles, smartphones and artificial intelligence.

The export controls rocked the global semiconductor supply chain when they were unveiled in October, threatening to derail decades of investment in China by the world’s biggest tech groups.

Since taking power in 2012, Xi has placed freeing China from its dependence on foreign chipmaking infrastructure at the heart of his economic agenda.

However, since the export controls were announced, Beijing has increased spending on research and development to counter what it describes as a “blockade” on the building of its technology industry.

Domestic tech giants Alibaba and Tencent have been enlisted alongside state-backed groups such as the Chinese Academy of Sciences to create new semiconductor intellectual property to bolster the country’s capabilities and reduce dependence on foreign-made chips.

Chinese chipmaking champions such as Semiconductor Manufacturing International, Yangtze Memory Technology and Hua Hong Semiconductor have grown rapidly in recent years. However, the groups are dependent on foreign companies for some core elements of underlying chip design and the equipment needed to make them.

The US is negotiating with Japan and the Netherlands to try to reach a trilateral export controls agreement that would lead to the two US allies barring their companies from selling chipmaking tools for advanced Chinese semiconductors.

Chinese consumers accounted for about $186.5bn of the $510bn global semiconductor market in 2021, according to research group IC Insights. However, factories owned by Chinese companies accounted for just $12.3bn of total production.

The White House did not immediately respond to a request for comment.