The United States House Select Committee on the CCP has recently pointed out in its latest report that there are loopholes in the existing export controls in the West, and significant sales to China by equipment manufacturers from the United States, Japan, and the Netherlands are still ongoing. Last year, Chinese companies legally purchased about $38 billion worth of Semiconductor Manufacturing Equipment (SME), accounting for 39% of the total sales of the five major equipment manufacturers, a 66% increase from 2022.
The Committee emphasizes that SME equipment is currently a “crucial chokepoint” held by Western countries and calls for increased coordination with allies and improved controls to maintain and expand this advantage.
Chairman of the Select Committee on the CCP, John Moolenaar, stated, “The companies involved in this investigation are major equipment manufacturers, and China is using this equipment to advance its military ambitions.”
“These equipment manufacturers are increasing profits at the expense of U.S. national security. We must not hand over these critical equipment to our major competitors, or else the United States may fall behind in the technological arms race,” he said.
The committee’s chief Democratic member, Raja Krishnamoorthi, said, “Selling chips needed for modernizing the military and violating human rights to the Chinese Communist Party makes no sense. But what’s even more absurd is selling the machines and tools needed to produce these chips to the CCP.”
He added, “This bipartisan investigation shows that the scale of sales by Dutch, Japanese, and American companies is even larger than previously known. We need to work with allies to protect national security and ensure that we continue to maintain a leading innovative position in the Semiconductor Manufacturing Equipment (SME) sector.”
The 52-page report, titled “Selling the Forges of the Future,” points out that China is aggressively stockpiling SME and preparing to consolidate self-sufficient chip manufacturing capabilities in the long-term competition with the United States.
The report names several suppliers, including ASML from the Netherlands, Tokyo Electron (TEL) from Japan, and U.S. companies KLA, Applied Materials, and Lam Research.
In 2024, these companies recorded the following percentage of revenue from sales to China: TEL at 44%, Lam at 42%, KLA at 41%, ASML and Applied Materials each at 36%. Overall, Chinese companies purchased $38 billion worth of equipment last year, marking a 66% increase from 2022.
The significant increase in sales to Chinese State-Owned Enterprises (SOEs) is particularly alarming, rising from $9.5 billion in 2022 to $26.2 billion in 2024.
Furthermore, the investigation also revealed that major customers of SME manufacturers include five entities associated with the Chinese military and intelligence agencies, including three companies named by the U.S. Congress last year for assisting Huawei in evading U.S. sanctions: Pengxinxu, SwaySure, and Qingdao Sien Technology.
The Committee emphasizes that the substantial transaction value was legally completed, as inconsistencies in international rules allow non-U.S. suppliers to ship to certain Chinese entities already restricted by the U.S.
Lawmakers stress that the ability to design and produce semiconductors is at the core of technological competition with China, with SME representing a “crucial chokepoint” the U.S. holds over China that must be “maintained, not wasted.”
The Committee detailed in the report four major threats of China’s procurement of SME to U.S. national security:
1. Military: Chips used in Chinese People’s Liberation Army (PLA) weapon systems could potentially harm U.S. and allied military personnel, especially in China’s so-called “intelligentized warfare” highly reliant on AI and high-level computing.
2. Trade: China is seeking to establish a vertically integrated chip manufacturing industry to withstand future export restrictions by the U.S. and its allies.
3. Economic Security: China aims to dominate both traditional and advanced semiconductor manufacturing fields to gain leverage against the U.S.
4. Human Rights: China abuses AI and high-level computing to infringe on human rights domestically and export “digital authoritarianism.”
The current export restrictions were mainly imposed during the Biden administration in 2022. In response to policy loopholes, the Select Committee on the CCP urges the U.S. government and allies to take immediate action.
The report highlights that Dutch and Japanese companies increased their sales to China following U.S. restrictions, revealing a lack of coordination among allies.
The Committee’s requests include:
1. Ally alignment: Demand that export controls from allies like the Netherlands and Japan align with U.S. restrictions.
2. Expanded controls: Implement broader “country-wide controls” on China instead of individual entity restrictions, making diversion more difficult.
3. Whistleblower mechanism: Establish a new export control “whistleblower” program.
4. Enforcement and diplomatic resources: Increase resources and personnel for the Department of Commerce’s Bureau of Industry and Security (BIS) and the State Department to improve the execution of export control policies and diplomatic coordination.
5. Comprehensive restrictions on component exports: Implement comprehensive restrictions on the export of SME components to China to prevent the CCP from using these critical inputs to establish its own chip manufacturing capabilities.
The report also issues a warning to the industry: “Equipment manufacturers should consider the Chinese Communist Party and its national champions as long-term threats to their own development, rather than cherished customers.”