HFAC Hearing Recap: McCaul Calls Out BIS on SMIC, Estevez Offers Mixed Bag on New Export Controls

House Foreign Affairs Committee Chairman Michael McCaul wasted no time yesterday in taking a hard line on the Bureau of Industry and Security’s (BIS) approach to Chinese semiconductor firm Semiconductor Manufacturing International Corporation (SMIC). Said McCaul:

“In just one recent six-month time period, BIS approved licenses worth $60 billion to Huawei and $40 billion to SMIC, their semiconductor company. Both of these companies are military companies for the CCP. And both are listed on the Entity List. BIS continues to mindlessly greenlight sensitive technology sales, and the CCP has proven they will use our own inventions against us.”

McCaul’s broadside against SMIC is justified, since researchers such as James Mulvenon have definitively connected SMIC to the Chinese military.

To his credit, BIS Director Alan Estevez had a strong message on keeping chips designed by Chinese companies out of U.S military systems. When asked by Congresswoman Aumua Amata Radewagen, “How many PRC chips are you comfortable in having in DoD systems and critical infrastructure?” he said: “No chip from the DoD system should come from anywhere else but from the United States.” That said, Estevez doesn’t seem to have the appetite to cast a wider net of export controls that go beyond targeting only the most advanced chips. He touted, “We are stopping the most advanced chips from being made in China.” But what about legacy chips?

Discounting the importance of legacy chips is a big mistake. If Beijing can control the legacy chip market, as it is trying to do by subsidizing companies such as SMIC, it could make the world more dependent on those chips. “It would give Beijing coercive leverage over every country and industry – military or civilian – that depend on 28 nanometer chips, and that’s a big, big chunk of the chip universe,” former Deputy National Security Adviser Matt Pottinger previously told Reuters.

Later in the hearing, Director Estevez assured Rep. McCaul that the department is “reassessing” relationships and export controls. That reassessment should proceed from the reality that all chips made by Chinese companies matter – and Estevez’s BIS unit should ready new export controls on SMIC as a follow-on action.