Lawmakers discover that Chinese chipmakers bought $38 billion worth of U.S. and allied tools, a policy that is a sign of failure.

Written by Stephen Nellis

SAN FRANCISCO (Reuters) – Loopholes in efforts by the United States and its allies to restrict China’s ability to manufacture advanced computing chips allowed China to buy nearly $40 billion in advanced chipmaking equipment, according to a bipartisan investigation by U.S. lawmakers.

Democratic and Republican administrations in the United States have tried to restrict China’s ability to manufacture microchips, considering this industry essential to national security.

But discrepancies in rules from the United States, Japan and the Netherlands led non-U.S. tool makers to sell to some Chinese companies, which U.S. companies could not, according to a report by the U.S. House of Representatives Select Committee on China, seen by Reuters.

The committee called for a broader ban by the Allied Group on sales of chipmaking tools to China, rather than a narrower ban on specific Chinese chipmakers.

Chinese companies last year bought $38 billion worth of equipment from five major semiconductor manufacturing equipment suppliers, without breaking the law, a 66% increase from 2022, when many tool export restrictions were imposed. The report also found that they account for approximately 39% of total sales of Applied Materials, Lam Research, KLA, ASML and Tokyo Electron.

The United States, citing national security concerns, is targeting China’s ability to manufacture the latest chips because they are essential for areas such as artificial intelligence and military modernization. The two economic superpowers are also competing to sell advanced technology such as artificial intelligence data centers to other countries.

“It is these sales that have made China increasingly competitive in manufacturing a wide range of semiconductors, with profound implications for human rights and democratic values ​​around the world,” the report said.

In an interview, Mark Dougherty, president of Tokyo Electron’s U.S. unit, said the industry’s sales in China have begun to decline this year, partly due to new regulations, and he welcomed more coordination between the U.S. and Japanese governments.

“I think it is clear from the American point of view that there is an outcome that is still desirable and has not yet been achieved,” Dougherty told Reuters.

Lam came forward and did not respond to a request for comment. ASML and KLA said they could not comment until they had seen the full report. The committee said the tool makers cooperated with the committee on the report and reported on its findings.

There are three Chinese companies that have become major clients of gadget manufacturers – SwaySure Technology Co, Shenzhen Pengxinxu Technology Co and SiEn (Qingdao) Integrated Circuits Co – which pose a particular security concern. It was flagged last year by congressional committee leaders Chairman John Moolenaar, a Republican from Michigan, and Ranking Member Raja Krishnamurthy, a Democrat from Illinois, in a letter to the Commerce Department alleging ties to a secret network helping Huawei Technologies Co., and U.S. officials blocked exports to them in December.