US proposes annual permits for Samsung, SK Hynix China chip plants

Washington is considering a significant shift in how it regulates semiconductor trade with China, potentially replacing indefinite equipment import waivers for Korean chipmakers with annual permits that could reshape global memory chip production.

The U.S. Department of Commerce has proposed issuing yearly licenses to Samsung Electronics and SK Hynix, South Korea’s memory chip giants, allowing them to bring American-made manufacturing equipment into their Chinese facilities under stricter oversight. This represents a notable departure from the more permissive approach these companies previously enjoyed.

The stakes for Korean chipmakers

Both Samsung and SK Hynix have built substantial manufacturing operations in China that have become integral to global memory chip supply chains. Samsung produces approximately 35-40% of its NAND flash memory—the storage chips found in smartphones and computers—at its facility in Xi’an. Meanwhile, SK Hynix manufactures roughly 40% of its DRAM memory chips, which provide temporary storage for active computer programs, at its plant in Wuxi, plus an additional 20% of its NAND production in Dalian.

These Chinese facilities focus primarily on general-purpose memory chips rather than cutting-edge products like high-bandwidth memory (HBM), the specialized chips that power artificial intelligence systems. This distinction matters because it positions these plants as suppliers of commodity components rather than strategic AI infrastructure.

The companies previously operated under the U.S. Validated End User (VEU) program, a trusted-buyer system that allowed certain factories in China to import American-made semiconductor manufacturing equipment without requiring individual licenses for each shipment. However, the Trump administration removed their Chinese plants from this preferential list, creating uncertainty about their ability to maintain production lines that require regular equipment updates and maintenance.

Limited scope of proposed changes

The new annual permit system would provide Samsung and SK Hynix with some operational predictability, allowing them to plan equipment purchases and maintenance schedules with greater confidence. However, the proposal introduces additional bureaucratic requirements, with companies needing to apply each year for approval of specific quantities of restricted manufacturing tools.

Critics suggest the policy’s practical impact may be constrained by Washington’s continued restrictions on technology upgrades. The U.S. Bureau of Industry and Security has explicitly stated it “does not intend to grant licenses to expand capacity or upgrade technology at fabs in China,” meaning these permits would likely cover maintenance and replacement of existing equipment rather than modernization efforts.

Broader industry implications

The Korean companies’ situation reflects wider tensions in semiconductor trade policy. Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, recently lost its validated end user status for shipments to China, with the change taking effect December 31. TSMC’s Nanjing facility produces older-generation semiconductors, while the company’s most advanced chips remain manufactured in Taiwan and the United States.

These policy adjustments occur as American chip companies push for greater access to Chinese markets. Nvidia CEO Jensen Huang recently highlighted the potential opportunity, estimating China’s AI chip market could reach $50 billion in 2025 with 50% annual growth. Speaking during Nvidia’s earnings call, Huang expressed optimism about bringing the company’s advanced Blackwell processors to China, noting “a real possibility” for market entry if U.S. officials approve expanded access.

Huang’s comments follow his visits to the White House in July and August, where he advocated for export licenses for Nvidia’s H20 chip, currently subject to U.S. restrictions. In August, the Trump administration reached an agreement allowing Nvidia to sell H20 processors in China, provided 15% of revenue flows to the U.S. government—an arrangement that illustrates the complex compromises emerging in semiconductor trade policy.

Strategic considerations

The proposed annual licensing system for Korean chipmakers represents an attempt to balance competing priorities: maintaining pressure on China’s technological development while avoiding severe disruption to established supply chains that serve global markets. For Samsung and SK Hynix, the arrangement would provide operational continuity for their substantial Chinese investments while accepting greater regulatory oversight.

However, the policy’s effectiveness in achieving broader strategic goals remains questionable. Without the ability to upgrade or expand their Chinese facilities, these companies may gradually shift new investments to other locations, potentially reducing their long-term dependence on Chinese manufacturing. This gradual rebalancing could align with U.S. objectives of diversifying critical technology supply chains away from China.

The ongoing discussions between Washington and Seoul highlight the complexity of implementing technology restrictions that affect allied nations’ major corporations. As negotiations continue, the final framework will likely reflect compromises between security concerns, economic relationships, and the practical realities of global semiconductor manufacturing.

The outcome of these deliberations will influence not only Samsung and SK Hynix’s operations but also set precedents for how the United States manages technology trade with China across other strategic industries. For global technology markets, the resolution offers insights into the evolving balance between economic integration and national security considerations in an increasingly fragmented technological landscape.