AsianFin -- A U.S. House panel is calling on Washington to “dramatically” expand its export control on chipmaking tools, citing national security risks posed by China’s rising semiconductor industry.
Credit：Freepik
Following a months-long investigation, the House of Representative Select Committee on China (Committee) has found that companies in America and allied nations —including ASML in the Netherlands, Tokyo Electron (TEL) in Japan, and Applied Materials, KLA, and Lam Research in the United States—fueled semiconductor manufacturing in China and made sizeable returns selling equipment to Chinese state-owned and military-linked companies, according to a press release by the committee focusing on U.S. economic and security competition with China on Tuesday.
"The Select Committee has revealed that companies in this investigation are large-scale producers of equipment that China is using to fuel its military ambitions. They are growing their profits at the expense of U.S. national security. We must not allow this critical equipment to be handed over to our foremost adversary, or America could lose the technology arms race," said the Chairman John Moolenaar.
The investigation has substantiated concerns and clearly demonstrated the need for continued action to protect American national security by constraining the flow of semiconductor manufacturing equipment (SME) to China, the Committee wrote in a report exploring how China its its key equipment for chipmaking from U.S. Dutch and Jpanese companies.
The Committee said it uncovered staggering numbers. Chinese companies spent $38 billion in 2024 for the products and services from the aforementioned five companies including TSML, presenting 39% of their total worldwide revenue and an increase of 66% in China’s purchases from these makers compared to two years earlier. In 2024, TEL received 44% of its revenue from China, Lam Research received 42%, KLA received 41%, and ASML and Applied Materials received 36%.
SME companies are selling to entities known for their connections to China’s military and intelligence apparatus, according to the Committee. Its investigation revealed that five companies identified by the U.S. government as posing serious national security concerns are top customers of the SME makers, including associates of Huawei.
The SME makers are also fueling China's state-owned enterprises (SOEs). In 2022, the companies sold $9.5 billion worth of SME to PRC SOEs, representing 11% of their overall revenue and 42% of their PRC-based revenue. By 2024, this had grown to $26.2 billion, 27% of overall revenue, and 69% of PRC-based revenue.
Other key findings include that the five companies have expanded these sales even while some of them acknowledge that their’ access to the Chinese market is unnecessary to maintain their long-term growth, and that the CCP appears to stockpiling lithography equipment at sophistication levels just below where current restrictions apply.
In order to combat U.S. and allied companies profiting from “America's top adversary”, the Committee in its report made some recommendations to expand export restrictioins, improve enforcement, and advance American and allied technological leadership.
It proposed to “dramatically expand country-wide bans and licensing requirements on SME exports to China to cover any SME and related components and consumables useful for making advanced and foundational chips”, and restrict the export of components that are important to the production of SME.
It also calls for aligning U.S. and allied export controls, so the Netherlands and Japan catch up to American controls and enforcement, and widening the list of restricted entities and prohibiting all allied manufacturers from selling to additional Chinese military entities. Any fabrications worldwide that use U.S. and allied SME are required to be restricted from using Chinese SME, per the report.
The report asked the Congress to enact legislation to create a new whistleblower incentive program to increase reporting of export control violations. For better enforcement, it proposed to increase resources and personnel for U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the State Department.
If necessary, the report suggested the U.S. expand its use of the foreign direct product rule, which extends export controls to certain foreign-made products that rely on U.S. technology, to block sales in allied countries.
“It makes little sense to sell the CCP the chips they need to modernize their military and violate human rights. But it makes even less sense to sell them the machines and tools they need to produce those chips themselves. ” ranking member of the Committee Raja Krishnamoorthi talk about sales to the Chinese Communist Party (CCP) in a statement.
Zhou Mi, a senior research fellow at the Chinese Academy of International Trade and Economic Cooperatioon Wednesday described the Comittee’s proposed move as another example of the U.S. “long-arm jurisdiction” that would further disrupt the global chip industry and supply chains and hurt businesses, including those in the U.S., Chinese news media outlet Global Times reported.
The U.S. uses so-called "ideology" as a pretext to interfere in normal business operations, which violates international norms and harms companies' interests, Zhou told the state-backed newspaper. The Chinese expert warned that China's semiconductor industry has grown steadily, supplying both the domestic and global markets and supporting the world's digital economy.
