On May 30th, Bloomberg reported that the U.S. government is planning to broaden restrictions on the Chinese tech industry by including subsidiaries controlled by companies sanctioned by the United States.
According to sources familiar with the matter, officials are drafting a regulation that would require obtaining U.S. government approval for transactions involving subsidiaries of these sanctioned parent companies. This regulation would apply to provisions concerning subsidiaries of companies in the Entity List, Military End-User List, and Special Designated Nationals List, with a 50% equity threshold. This rule could potentially be announced as early as June.
Some of China’s largest chip design and manufacturing companies, such as Huawei and Yangtze Memory, have already been listed on the U.S. Entity List.
The new regulations aim to prevent these companies from circumventing U.S. trade restrictions by establishing subsidiary companies. U.S. lawmakers have likened this trend to a game of whack-a-mole.
Sources indicate that the specifics of the rules and the release date are yet to be finalized and may still undergo changes. Following the publication of the regulation, the U.S. may impose a new round of sanctions on large Chinese companies.
Bloomberg’s report suggests that the proposed new regulations could escalate tensions between the U.S. and China.
On Friday, the U.S. President openly criticized that the Chinese Communist Party has flagrantly violated the recent agreement reached during the Geneva negotiations.
By restricting China’s access to advanced semiconductors through export controls and implementing stricter scrutiny on Chinese student visas, the U.S. has caught China off guard. Meanwhile, Beijing’s promised relaxation of export restrictions on critical rare earth minerals to the U.S. remains unfulfilled, sparking anger within the Trump administration.
Tech companies like YMTC and Huawei have been utilizing subsidiary companies as fronts to circumvent U.S. export control regulations by importing restricted high-end chips from other countries.
Landon Heid, nominated for a senior position in the Department of Commerce by President Trump, introduced the concept of the subsidiary rule at an April confirmation hearing.
The U.S. House Foreign Affairs Committee also made similar recommendations in a report at the end of 2023, citing the current inefficacy of the Entity List and calling for reforms.
(Partial information in this article is based on reporting from Bloomberg)