Is BIS Edging Closer to Putting YMTC on the Entity List?

Is BIS Edging Closer to Putting YMTC on the Entity List?

The Information reports that the U.S. Department of Commerce is weighing restrictions on the sale of semiconductor manufacturing equipment (SME) to YMTC, China’s national champion semiconductor manufacturer known to have close ties with the Chinese military. These restrictions, which would also reportedly apply to other state-backed firms such as Hua Hong Semiconductor and ChangXin Memory Technologies, would deal a blow to YMTC’s ability to produce chips, and secure a victory for American national security.

The rules, which reportedly take months to develop, would echo the decision the Commerce Department’s Bureau of Industry and Security (BIS) made in 2020 to place China’s Semiconductor Manufacturing International Corporation on the Entity List based on its ties to China’s military-industrial complex. The restrictions would prevent companies like Applied Materials, Lam Research, and KLA Corporation, which collectively reported $14.5 billion in sales to China last year, from exporting semiconductor manufacturing equipment to YMTC. The rules would also prevent U.S. companies producing chips in China from importing the machines they need.

Time is of the essence in applying the rules. According to a report in DigiTimesAsia from March, Apple is reportedly preparing to begin shipping iPhones with YMTC chips beginning this month. A forthcoming China Tech Threat report describes how on YMTC chips in Apple products will:

  • Compromise iPhone users’ security and privacy with untrusted Chinese technology
  • Concentrate more chip production in China, increasing supply chain risk
  • Force the exit of at least one memory chip supplier from a democratic country, reducing U.S. jobs
  • Give undeserved legitimacy to YMTC as a chip manufacturer
  • Bolster the Chinese government’s quest to dominate global semiconductor production, reducing U.S. leadership and innovation

Apple’s deal with YMTC could precipitate what Dylan Patel has called a “NAND Apocalypse”: the end of the memory market as a highly competitive and innovative market with multiple players into a monopoly dominated by one firm, YMTC. China has gained chip market share, not because of patenting superior, more innovative chips but from flooding the market with cheap, inferior chips. This drives down chip price and drives out  innovative, high-quality suppliers from the market. Such was the testimony of Stephen Ezell, Vice President for Global Innovation Policy at the Information Technology and Innovation Foundation to the to the U.S.-China Economic and Security Review Commission. He calculates that the Chinese low-cost chip strategy has reduced the industry’s overall chip patent intensity, costing the US firms some 5000 patents which would have otherwise been issued.

Clearly, placing YMTC on the Entity List is long overdue. Multiple security experts and policymakers – from James Mulvenon, to James Lewis, to Marco Rubio – have for years urged placing YMTC on the Entity List. That’s because U.S. companies such as Applied Materials, Lam Research, and KLA Corp. have earned billions of dollars selling high end chip making tools to Chinese fabs linked to the Chinese military like YMTC, and have likely pushed the Commerce Department not to place YMTC on the Entity List.  Now is the time for BIS and do the right thing in the name of user privacy and national security.