Is the Biden Administration Finally Going to Crack Down on China’s Chipmakers?

Bloomberg reports that the National Security Council (NSC) was set to meet yesterday to discuss tougher restrictions on China’s largest chipmaker, Semiconductor Manufacturing International Corp (SMIC). In September 2020, China Tech Threat described how China’s semiconductor sector is integrated with its military and noted the important report on SMIC by military intelligence expert James Mulvenon. However, SMIC’s designation as a military end user and ultimately to the Entity List seemed to lack teeth.

Indeed as House Foreign Affairs Ranking Member Mike McCaul (R-TX) told China Tech Threat in a recent exclusive, the licensing policy for SMIC is “utterly ineffective” and “appears designed to give the company access to nearly all the semiconductor manufacturing equipment, technologies, and other goods it needs to make semiconductors.” It was as if SMIC was added to the Entity List without the sufficient conditions. In any event, it is a welcome development that the interagency process is working with NSC, Commerce, Defense, State, and Energy meeting, as reported.  

SMIC isn’t the only Chinese chipmaker that should be reviewed. Like SMIC, Yangtze Memory Technologies (YMTC) and ChangXin Memory Technologies (CXMT) both have ties to the People’s Liberation Army (PLA) and should be added by the Commerce Department’s Bureau of Industry and Security (BIS) to the Entity List.

Further, the Bloomberg piece brings up potential issues for U.S. semiconductor equipment makers – namely Applied Materials, KLA Corp, and Lam Research Corp – should rules be tightened on exports to SMIC. While BIS has slow-walked the Chinese chip fab review, U.S. companies have enjoyed record profits selling cutting edge machines to America’s leading military adversary. Evidently undeterred by the national security concerns such sales create for Americans at large, these firms have put their own financial future at risk. As a paper co-published by CTT and Coalition for a Prosperous America explains, China’s endgame is to become self-sufficient and eviscerate U.S. leadership in semiconductors, as it has done with the smartphone, solar panel, telecommunications equipment, flat panel displays, and LED domains. The BIS Undersecretary under President Obama, Eric Hirschhorn, said at a CTT event, “You don’t balance national security with sales—you can’t.”

The White House 100 Day Supply Chain Report called out YMTC, citing research from Will Hunt of the Center for Security and Emerging Technology (CSET). In a CTT interview, Hunt observes that there’s a case to be made for unilateral controls on YMTC as it relies on specialized tools that only come from the U.S. One example he gives is an etch tool made by Lam.

The longer it takes the U.S. to act, the more China can advance in its semiconductor ambition. There is no reason to empower China with chips to make their military even stronger and put Americans in greater peril. Let’s hope that the NSC prevails in the discussion, and SMIC – and others – are properly restricted.