Probe Finds Loopholes Fuel China’s Chipmaking Industry
Udumbara
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The House Select Committee on the Chinese Communist Party said on Tuesday that key semiconductor manufacturing equipment (SME) companies have sold China the tech it needs to fuel its military modernization on a “large-scale” basis.
“China is still buying vast quantities of highly sophisticated SME from the United States, Japan, and the Netherlands,” the report reads.
Chinese firms bought more than $38 billion worth of semiconductor manufacturing equipment last year, according to the report, and did so legally. About $26.2 billion of these sales were to Chinese state-owned enterprises.
The report, a result of months of discussion with the toolmakers, does not focus on any illegal activity such as export control evasion, but shows a gap between strategic goals and commercial activity.
Highly Specialized Equipment
Chips are measured in nanometers, and the most advanced are the smallest. With layers the width of an atom, chip manufacturing requires highly specialized equipment made by a handful of companies around the world.The report highlights five of these companies, which made 39 percent of their worldwide revenue from China last year, representing a 56 percent increase in the share of revenue from China in 2022.
U.S.-based Applied Materials sells several SME tools, including ones for etching, deposition, and inspection. It received 36 percent of its 2024 revenue from China.
Dutch company Advanced Semiconductor Materials Lithography is the leading lithography tool maker, known for its extreme ultraviolet lithography technology. It received 36 percent of its 2024 revenue from China.
U.S.-based KLA Corporation sells a variety of SME tools but specializes in process-control and process-enabling tools. It received 44 percent of its 2024 revenue from China.
U.S.-based Lam Research Corporation sells several tools, including those for etching, deposition, and cleaning. It received 42 percent of its 2024 revenue from China.
Japanese company Tokyo Electron Ltd. makes tools for coating, developing, etching, deposition, and cleaning. It received 44 percent of its 2024 revenue from China.
“If the PRC could get this equipment elsewhere or build it within the PRC, it would. But it can’t–for now,” the report reads.
The report notes that the customers include “restricted entities.” These are companies of concern that U.S. agencies may require to obtain licenses to sell to, but do not denote illegal activity.
For example, each of the five SME companies has sold to Chinese state-owned Semiconductor Manufacturing International Corporation (SMIC). Other companies include Huawei subsidiaries and companies with close ties to the Chinese military.
China’s Chipmaking Problem
The first Trump administration began the United States’ trend of restricting China’s access to the most advanced chip technologies—both the chips themselves and the specialized equipment needed to manufacture them—for national security reasons.In 2024, China imported $385 billion worth of chips, up 10 percent year over year, according to Chinese customs data, stockpiling the tech before new export controls kicked in.
Chinese companies have over the years also found illicit ways to get their hands on restricted chips, but Chinese authorities have come out more strongly recently in pushing Chinese companies to use domestically made chips.
To do that, Chinese companies need more advanced chips—and Chinese chipmakers need equipment that China cannot produce domestically.
The Chinese communist regime, as outlined in its Made in China 2025 plan, envisions a fully self-sufficient supply chain by 2030. To that end, Chinese chipmakers have raised and invested billions in the past few years.
“SME represents a crucial chokepoint that the U.S. and our allies currently have over China,” the report reads.
“As the U.S. government works with our allies and partners and plots the course ahead on export control policy and related actions, this crucial chokepoint must be preserved, not squandered.”
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