American suppliers are beginning to withdraw staff from one of China's leading chip companies in the wake of new U.S. regulations, a blow to Communist Party efforts to build a vibrant domestic technology industry.

Applied Materials Inc., KLA Corp. and Lam Research Corp. have started or are preparing to pull employees from Yangtze Memory Technologies Co., the country's most advanced maker of memory chips, according to people familiar with the matter who asked not to be identified because the moves are private. The withdrawals are coming this week, the people said, following new regulations from the Biden administration last week that ban Chinese companies from buying advanced chip-making equipment or employing American citizens without a license.

Yangtze Memory was also among more than 30 organizations that the U.S. Commerce Department put on its so-called unverified list, which restricts their ability to buy American technology.

Companies such as Applied Materials that produce chip-making machines often send employees to customer facilities to help them fine-tune the manufacturing processes. It's not clear whether the companies are pulling staff because of Yangtze Memory's placement on the unverified list or because of other restrictions. The U.S. companies need to assess their constraints under the Biden administration's rules.

Yangtze Memory will likely be able keep operating some production lines on stockpiled components, one of the people said.

The company didn't immediately respond to requests for comment. The Wall Street Journal reported some details of the Yangtze supplier moves earlier.

The severity of the U.S. regulations stunned many in the chip industry, potentially jeopardizing the operations for hundreds of Chinese semiconductor companies. The Biden administration argued the regulations are necessary to prevent the Communist Party from becoming more of an economic and military threat.

China has ambitious goals to develop its supercomputers and become a leader in artificial intelligence, said Thea D. Rozman Kendler, Assistant Secretary of Commerce for Export Administration. "It is using these capabilities to monitor, track and surveil their own citizens, and fuel its military modernization."

The Chinese government has made it a national priority to build a domestic semiconductor industry, pouring tens of billions of dollars into the effort. This year, President Xi Jinping renewed calls for the country to develop the technologies critical for national security, invoking the so-called "whole nation system" that propelled China's space and nuclear weapons programs

The Biden rules dealt a serious setback to that effort. Chip stocks and related companies tumbled across the country. Semiconductor Manufacturing International Corp. fell 9.3% over three days, as as Bloomberg Intelligence analyst Charles Shum slashed his estimate on 2023 growth by 50%. Naura Technology Group Co., a leading chip equipment maker, fell by its daily limit for two days in a row.

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