A recent opinion piece by Financial Times Greater China correspondent Kathrin Hille makes some powerful assertions. In “Huawei woes hide ‘toothless’ US export controls against Chinese tech,” she asserts:
- Huawei’s revenues are in “free fall” from the Entity List designation.
- The US should not construe this as a victory in its “technology war” with China.
- Huawei is just one company among many in China. While Huawei is hurting, other Chinese companies are thriving, notably in the semiconductor industry.
- US policymakers now have a difficult road ahead with export controls because US companies rely on money from China to earn revenue to fund future innovation.
- Corporate lobbying is slowing down the Bureau of Industry and Security’s (BIS) implementation of the 2018 Export Control Reform Act (ECRA) requirement to identity emerging and foundational technologies.
- The Entity List, which targets a person or company, is a crude instrument.
- United States-China Economic and Security Review Commission’s Emma Rafaelof says, “Controls on a specific technology or end use more effectively address a broader national security risk.” The long process of identifying which technologies should fall under extra export controls “has allowed for unfettered US exports of these technologies in the meantime,” in her recent paper.
- China is unpredictable and finds loopholes in the US policy to exploit. “For many of these Chinese companies there are no consequences at all — you could say that this part of US export controls is toothless,” said an industry insider.
- Many Entity List companies like Hikvision and Semiconductor Manufacturing International Corporation (SMIC) have seen revenues increase since listing. This means that the Chinese companies are finding workarounds to US export control policy.
China Tech Threat’s reaction:
Export controls exist to strengthen US leadership, not to punish foreign companies.
Hille’s comments are insightful but she seems to make the same mistake as the Economist magazine, which is to characterize US export control policy as a form of war with China. The purpose of the export control regime is to strengthen American security and technology leadership, not to punish foreign companies. It is rational and defendable that Americans should not want cutting edge innovation to be shared with foreign adversaries. Strategic trade control is conducted to increase trade by ensuring that the technologies’ users and uses are those which are intended.
It is not empirical that US companies need revenue from China to fund their growth.
The assertion that US companies must earn revenue from China to fund future growth has political valence, but it is not an empirical statement. Any one company has a range of products and services across many markets, not all are dependent on China in the same way for the same product at the same time. Any good strategy or investment is based upon the practice of diversification to limit risk. A public company has a problem if its entire revenue strategy is based on China.
In fact, the truth is likely the opposite: for the cutting-edge semiconductor tech, China is dependent on the US. For example, American company Lam Research may be the only producer for specialized etch tools essential for 3D NAND production. Given this, the US can withhold products when security warrants it.
BIS needs to do its job.
Hille is correct that BIS has a Congressionally-mandated responsibility to prepare the list of foundational and emerging technology and that it needs to step up and restrict the Chinese military-aligned companies like YMTC and CXMT. Derek Scissors has also observed this and notes that if BIS can’t do it, the function should be moved to another agency. This is why the new head of BIS is so important. For more on BIS and its leadership, follow our #FutureofBIS series.