Chinese companies acquire US equipment for advanced chips despite recent export restrictions

Chinese companies are acquiring US chipmaking equipment to produce advanced semiconductors, despite recent export restrictions aimed at impeding China's semiconductor industry, according to a report released on Tuesday. 

The 741-page annual report from the US-China Economic and Security Review Commission criticises the export curbs imposed by the Biden administration in October 2022, which aim to prevent Chinese chipmakers from accessing US chipmaking tools for manufacturing advanced chips at the 14-nanometer node or below.

The report highlights that, due to the Commerce Department's use of the 14-nanometer restriction limit, importers can often claim the equipment is intended for use on an older production line. With limited capacity for end-use inspections, it becomes challenging to verify that the equipment is not being used to produce more advanced chips.

This revelation comes as the US investigates how Chinese telecom giant Huawei managed to produce an advanced 7-nanometer chip for its Mate 60 Pro smartphone at China's leading chipmaker, SMIC, despite export curbs announced last year. Despite Huawei and SMIC being added to trade restriction lists in 2019 and 2020, respectively, the report suggests that SMIC had other options for obtaining equipment from overseas, potentially circumventing the October 2022 rules.

While the US successfully closed a key loophole by persuading allies Japan and the Netherlands to announce their own restrictions on chipmaking equipment exports, the report indicates that China stockpiled equipment during the lag time between the US rules in October 2022 and Japan and the Netherlands' similar moves in July and September 2023, respectively.

Between January and August 2023, China imported $3.2 billion (RMB 23.5 billion) worth of semiconductor manufacturing machines from the Netherlands, representing a 96.1 per cent increase compared to the same period in 2022. China's total imports of semiconductor equipment from all countries reached $13.8 billion (RMB 100 billion) in the first eight months of 2023, the report added.

While the report does not provide a specific recommendation to address the gaps in US rules, it urges Congress to request an annual evaluation by the General Accountability Office, completed within six months and made public, assessing the effectiveness of export controls on chipmaking equipment to China.

(With Reuters Inputs)