BIS Explains New China-Focused Export Controls, Entity List Regulations

Last Friday, the Bureau of Industry and Security (BIS) introduced new export controls to restrict the People’s Republic of China’s (PRC) ability to purchase or manufacture certain high-end chips, a move which China Tech Threat applauds. This timely action also includes the addition of 31 China-based companies and institutions, including Yangtze Memory Technologies Corporation (YMTC), which is China’s top memory chip maker and linked to the Chinese military, to the Unverified List.

The rules are having an immediate impact. The Wall Street Journal reported yesterday – just under a week later – that American semiconductor manufacturing equipment companies such as KLA Corp and Lam Research are hitting pause on their operations in China and pulling out their staff based at YMTC. Additionally, Applied Materials slashed its sales projections, citing the restrictions. These companies have long relied on big sales to China and YMTC, so it’s not surprising to see this impact but as we and others have argued, America’s national security cannot be sacrificed for short-term profits.

Similarly, the Dutch company ASML – another supplier of high-end chipmaking equipment – “has told its US staff to stop serving all Chinese customers while it assesses the sanctions.”

Today, Assistant Secretary for Export Administration Thea D. Rozman Kendler gave a briefing about the new rules, further stating:

“The strategic environment we’re in today necessitates a new approach on export controls, particularly on technologies such as advanced logic and memory chips. For those technologies, we must move away from our previous approach of maintaining relative advantage over our competitors and instead seek to maintain as large of a lead as possible… At the same time, we recognize the importance of the semiconductor industry to the world economy. For this reason, we scoped our measures narrowly to focus only on the chips, equipment, activities and entities of greatest national security concern that ensures that our actions will have the least possible impact on commercial activity and not cause disruptions to global supply chain. These measures are both comprehensive and targeted, address threats posed by technologies and uses and users of concern.”

Additionally, while the lack of an Entity List designation for YMTC and other dangerous Chinese chipmakers like CXMT was disappointing, BIS seemingly widened the door to that eventual possibility. It put multiple companies, including YMTC, on what it deems the Unverified List. This could perhaps be a prelude to an Entity Listing. As the press release announcing the action read:

“A sustained lack of cooperation by a foreign government that prevents BIS from verifying the bona fides of companies on the Unverified List (UVL) can result in those parties being moved to the Entity List, if an end-use check is not timely scheduled and completed.”

With China and the United States locked in intense competition across the technology sector and other domains, it will be worth watching to see whether the Chinese government permits BIS to perform its due diligence. Our guess is that no one should hold their breath waiting for China to allow U.S. government officials to verify how American technologies are being used. China Tech Threat will be sure to keep track of this in the coming months.