US, Allies Should Curb Exports of Chipmaking Tools to China, House Panel Says
U.S. and allied export controls have failed to stop China from buying “vast quantities of highly sophisticated” semiconductor manufacturing equipment (SME) it could use to advance its chipmaking capabilities and bolster its military and surveillance apparatus, the House Select Committee on China said in a new report Oct. 7.
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With country-wide export controls restricting China's access only to the most advanced SME, China spent $38 billion in 2024 on products and services from five leading toolmakers based in the U.S., Japan and the Netherlands, up 66% from 2022, says the report, “Selling the Forges of the Future,” which is the result of an 11-month bipartisan investigation (see 2411080042).
Last year’s large volume, which accounted for 39% of the toolmakers’ combined global revenue, occurred even though many of China’s top customers, such as Semiconductor Manufacturing International Corp. (SMIC), have been added to restricted lists, such as the Bureau of Industry and Security’s Entity List. SMIC "was placed on the BIS Entity List with a permissive export licensing policy in 2020 and BIS granted licenses to export SME to SMIC thereafter," the committee wrote.
The committee found that non-U.S. toolmakers boosted their revenue from restricted Chinese entities as the U.S. imposed more controls on American toolmakers. The tighter U.S. restrictions have “created an unlevel playing field” for American firms, the report says. But even though BIS has had “some success” with its controls, those restrictions are plagued by “significant gaps,” which China has exploited, such as by shifting sales from restricted entities to non-restricted ones.
The committee calls for a stricter approach. “It is far past time that the toolmakers start treating the [Chinese Communist Party] and its national champions as threats to their corporate longevity, rather than as valued customers,” the report says. “And since they have not yet done so, it is imperative that the governments of the United States, the Netherlands, and Japan prevent the toolmakers and aspiring competitors from selling to our adversaries the tools to build their own foundries for forging the means with which they would seek military supremacy, promote digital authoritarianism globally, and sink the world into a new dark age.”
To reduce China’s access to chipmaking equipment, the report recommends that the U.S. work to align American and allied export controls, including by adopting a policy of a presumption of denial for restricted entities. If the allies refuse to go along, the U.S. could invoke the foreign direct product rule to place licensing requirements on foreign-made equipment that contains American technology.
The report also proposes expanding country-wide bans and licensing requirements to cover more types of equipment and parts. Affiliates of companies on the Entity List would automatically face the same restrictions as the listed firms.
“The findings of this investigation point to an overarching conclusion: to be effective, export controls to prevent SME technology transfer to China must apply to all of the [Asian country], not just specific entities,” the report says. “They must also encompass the entire production chain, supply chain, and associated components of the SME at the technical threshold being protected.”
The committee downplayed the potential financial impact that expanded export restrictions would seem to have on toolmakers, saying some of the firms have acknowledged that access to the Chinese market "is unnecessary to maintain their long-term growth."
The committee also would give BIS additional resources to expand its export control enforcement and upgrade its technology and would provide the agency with “flexible hiring” authorities to help it attract top experts. It would pass legislation to incentivize whistleblowers to report export control violations.
Bills to increase BIS funding and create a whistleblower program are pending in Congress (see 2509110077, 2507170053, 2504140012 and 2507100053). Another pending bill would require the executive branch to report to Congress annually on China’s semiconductor manufacturing capabilities, including whether U.S. and allied export controls are curbing the development of that equipment (see 2509250047).
The five companies highlighted in the report comprise an estimated 80% to 85% of the SME market. One of them, Netherlands-based ASML, declined to comment on the document. The other four companies – U.S.-based Applied Materials, KLA Corp. and Lam Research and Japan’s Tokyo Electron -- and BIS didn’t immediately respond to requests for comment.