The latest report from the United States House of Representatives Select Committee on the CCP reveals that Chinese companies legally purchased approximately $38 billion worth of semiconductor manufacturing equipment last year, a 66% increase from 2022. The committee warns that there are serious loopholes in existing Western export controls and urges allies to implement “national-level controls” to plug these gaps.
Experts analyze that the difficulty in coordination of controls stems from economic interests driving and blurred definitions of technology. Although China has strong production capacity in mature processes, it still lags behind by two to three generations in advanced processes, requiring at least 5 more years to achieve full independence.
In a comprehensive 52-page investigative report titled “Selling the Forge of the Future,” the US House of Representatives Select Committee on the CCP disclosed astonishing data: in 2024, Chinese companies legally purchased around $38 billion worth of semiconductor manufacturing equipment, marking a 66% surge from 2022.
Of particular note is the amount sold to Chinese state-owned enterprises, which skyrocketed from $9.5 billion in 2022 to $26.2 billion in 2024, nearly tripling in size.
The report names five major suppliers: ASML from the Netherlands, Tokyo Electron Limited from Japan, KLA Corporation, Applied Materials, and Lam Research from the United States.
Data shows that in 2024, these companies had a significant portion of their revenue coming from China: TEL at 44%, Lam at 42%, KLA at 41%, and ASML and Applied Materials each at 36%. The Chinese market has become a significant source of income for these equipment manufacturers.
Chairman of the committee, John Moolenaar, stated: “Equipment manufacturers are sacrificing US national security for increased profits. We must not hand over these critical equipment to our main adversaries, otherwise, the US may fall behind in the technological arms race.”
The committee’s chief Democratic member, Raja Krishnamoorthi, expressed: “Selling machines and tools required for self-production of chips to the CCP is simply absurd.”
The investigation also revealed that several Chinese military and intelligence-affiliated companies are becoming important customers for Western semiconductor equipment manufacturers, including Peng Xinxi, Sheng Weixu, and Qingdao Sinen Technology, accused by the US of assisting Huawei in circumventing sanctions.
Regarding the ineffectiveness of US control measures, Xie Peixue, Deputy Researcher at the Net-Centric Operations and Targeting Reconnaissance Research Institute of Taiwan’s National Defense Institute, stated in an Epoch Times interview that Western allies, led by the US, face many structural barriers in semiconductor technology containment mechanisms.
“The core challenge lies in coordination difficulties,” Xie Peixue analyzed, noting that the control rules of the top three semiconductor equipment exporting countries – the US, Japan, and the Netherlands – are not consistent, allowing non-US suppliers to still provide goods to Chinese entities blacklisted by the US, weakening overall control effectiveness.
He believed that the primary reason for divergence lies in economic interests. In 2023, nearly 40% of global semiconductor equipment vendors’ sales came from China, making it challenging for all parties to relinquish this market share. The Dutch government emphasizes policy autonomy and is reluctant to fully adopt US rules.
The report pointed out that after the implementation of restrictions in the US by Dutch and Japanese companies, their revenues from sales to China actually increased, highlighting a lack of coordination among allies.
He said: “The ambiguity in technology definitions also brings implementation challenges. The CCP actively hoards lithography equipment that barely falls below existing restriction thresholds, employing a ‘pushing the boundaries’ strategy that clearly exploits the technical gray area of control, making precise identification of restricted technology more complex.”
Professor Sun Guoxiang from the Department of International Affairs and Business at Nanhua University in Taiwan believes, “The difficulty lies in inconsistent control approaches, threshold rules that can be circumvented, disparities in allied industrial interests, and limited enforcement and tracking capabilities.”
“If these loopholes are to be plugged, allies must synchronize systematized equipment grading, licensing, end-use and end-user lists, third-country re-export, and service maintenance, and be willing to bear the corresponding industrial costs. While feasible technically, it’s challenging in political economy, but can be gradually advanced,” he said.
Despite Chinese companies acquiring a substantial amount of chip manufacturing equipment, their gap in achieving advanced process autonomy remains evident. After dissecting Huawei’s flagship AI accelerator Ascend 910C, Canadian research institution TechInsights found that the chip still heavily relies on technology provided by TSMC, Samsung Electronics, and Hynix.
Xie Peixue’s analysis noted that while Chinese companies purchased nearly $38 billion in semiconductor manufacturing equipment in 2023, “these devices are mainly used for mature processes above 28 nanometers, as well as attempting to break through production at the 7-nanometer node.”
Data indicates that SMIC’s 7-nanometer process has a yield rate of approximately 60% to 70%, far below TSMC’s level of over 90%, with production costs up by 40% to 50%. Their 5-nanometer process is still in trial production, with a yield far below 20%, showing a significant distance from commercial mass production.
Sun Guoxiang stated: “Chinese manufacturing standards generally perform strongly in mature processes able to achieve a quasi-7-nanometer technology through DUV multiple exposures and are exploring quasi-5-nanometer technology, but their production yield and cost are notably inferior to Taiwan, South Korea, and the United States.”
He identified multiple weak points: “EUV lithography equipment supply chain, EDA tools, IP core technology, high-end materials and metrology equipment, advanced packaging scaling, ecological software integration, as well as passive component and consumable supply chains, all have shortfalls.”
Experts assess that China will need at least five more years to reduce its technological reliance on the US. SMIC currently lags two to three generations behind TSMC and Samsung. By the end of 2025, China may hold about 30% of global capacity in mature processes, but faces many challenges in mass production of advanced processes.
The US House of Representatives Select Committee on the CCP’s investigative report extensively delineates the four major threats posed by China’s semiconductor manufacturing equipment acquisitions to US national security:
First, military threats are increasingly prominent. Chips used in CCP military weapon systems may directly endanger the lives of US and allied military personnel in “intelligent warfare.”
Second, trade patterns face upheaval. China is attempting to build a vertically integrated chip manufacturing industry to resist future export restrictions, fundamentally altering the global semiconductor trade landscape.
Third, economic security is challenged. China will gain a dominant position in chip manufacturing, using it to leverage against the US, threatening long-term US economic security.
Fourth, human rights concerns are worrying. The CCP abuses AI technology domestically, exporting “digital authoritarianism,” with semiconductors forming the basis of this technology.
The report issues a stern warning to the industry: “Equipment manufacturers should have viewed the CCP and its national champion enterprises as long-term threats to their own development, not as valuable customers.” This sentiment reflects the US’s high concern and sense of urgency regarding semiconductor supply chain security.
Faced with the threat posed by China in the semiconductor manufacturing equipment sector to US national security, experts have put forward recommendations to address the issue.
Xie Peixue stated: “Looking at the natural laws of technology diffusion and the scale of resources invested by the CCP, the narrowing gap between the US and China in semiconductor technology is a probable eventuality. But the key lies in how to delay this process and maintain the generational lead in semiconductor processes led by the US and Western countries.”
He recommended three core measures:
First, strengthen multilateral control mechanism coordination. Transition export controls from targeting specific companies towards comprehensive coordination to ensure consistency among major equipment exporting countries such as the US, Japan, and the Netherlands in control rules, technical standards, and enforcement efforts, avoiding the ‘weakest link’ effect.
Second, dynamically adjust the technical control scope. In response to the CCP’s hoarding of equipment that falls below restriction thresholds with the ‘pushing the boundaries’ strategy, a rolling adjustment mechanism must be established to update control lists promptly. It may even consider expanding control scope to DUV exposure technology rather than merely advanced EUV, cutting off technology outflow channels at the source.
Third, accelerate investment in next-generation technologies. Actively investing in 3-nanometer, 2-nanometer, or even more advanced process technologies to ensure that even if China breaks through the current nodes, the US and its allies can still maintain a lead of two generations or more in technology, creating a situation of ‘you chase, but there’s always a generational gap.’
Sun Guoxiang also believes that the West should establish a “multi-layer defense system”: comprising multilateral synchronized controls, service and upgrade bans, financial tracking and end-use audits, transparent supply chains with trustworthy standards, and simultaneously strengthen domestic and ‘friendly’ production capacity, to fortify technological advantages.