U.S. House Select Committee on China Recommends Measures to Reduce PRC Access to Advanced Semiconductor Manufacturing Equipment

In October, the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party (Select Committee) published the findings of a months-long investigation into Applied Materials, Inc., the Netherlands-based Advanced Semiconductor Materials Lithography (ASML), KLA Corporation, Lam Research Corporation, and the Japan-based Tokyo Electron Ltd. The five companies are the world’s leading manufacturers of semiconductor manufacturing equipment (SME).

The Select Committee found that the People’s Republic of China (PRC) spent USD 38 billion in 2024 for the products and services of the five leading SME producers. According to the Select Committee, five PRC semiconductor companies on the U.S. government’s Chinese military company list and the Entity List – the Select Committee referred to these companies as “the PRC’s most dangerous restricted semiconductor companies” – were “top customers” of each of the five SME manufacturer from 2022 to 2024. In turn, 39 percent of the SME manufacturers’ aggregate worldwide revenue in 2024 came from products and services sold to the PRC.^[1]

The Select Committee reached the following conclusions after its investigation:

• The PRC is heavily reliant on foreign SME manufacturers “to fuel its plans for military and economic dominance and digital authoritarianism, including those specifically identified and restricted by the U.S. government.”
• “U.S. export controls have created an unlevel playing field where the non-U.S. [SME manufacturers] are empowered to sell billions of dollars of SME per year to restricted entities to which U.S. [SME manufacturers] are restrained from selling.”
• While “restricting entities has some impact on at least those particular entities’ ability to obtain export-controlled items…Chinese companies use entity obfuscation as a workaround to continue to access U.S. technology.”
• “Current country-wide export controls have only restricted China from accessing the most advanced SME.” Foreign SME manufacturers “have continued to provide vast quantities of highly capable SME that is not labeled as ‘advanced’….”
• “The majority of the PRC’s semiconductor industry is overtly state-owned. . . [t]herefore, companies doing business with the PRC’s semiconductor manufacturing industry will necessarily do business with entities under the direct command of the CCP.”

Based on its findings, the Select Committee made “nine recommendations to expand export restrictions, improve enforcement, and advance American and allied technological leadership:”

• “The Executive Branch should employ incentives and leverage so that our allied and partner nations, particularly the Netherlands and Japan, are fully aligned with U.S. export control policy and enforcement.”
• “Dramatically expand country-wide bans and licensing requirements on SME exports to China to cover any SME and related components and consumables useful for making advanced and foundational chips.”
• “Expand the list of restrict entities and utilize FDPR [foreign direct product rule] authority, if necessary, to prohibit all sales of allied SME to restrict entities, matching current U.S. controls with licensing policy of presumption of denial.”
• “Prevent diversion of any SME for which sale to China remains permitted.”
• “Restrict any fabs worldwide that use U.S. and allied SME from also using Chinese SME, leveraging both BIS [Bureau of Industry and Security]’s export control and information and Communications Technology and Services (ICTS) authorities.”
• “Restrict the export to China of components that are important to the production of SME and seek comment at regular intervals from the SME industry regarding which components are critical.”
• “Bolster BIS’s resources and authorities to successfully constrain China’s semiconductor manufacturing capabilities and capacity….”
• “Enact bipartisan legislation to create a new whistleblower incentive program to increase reporting of export control violations.”
• “Support SME firms in the United States and our allied nations, including through training and attracting the top domestic and global talent.”

The Netherlands and UK Restrict Chinese Chipmaker Nexperia

One week after the Select Committee published its report, the Dutch government seized control of Chinese semiconductor firm Nexperia’s operations in the Netherlands. Nexperia’s products are used in electronics and automotive manufacturing throughout Europe.

According to the Financial Times, the Dutch economic ministry stated: “[Nexperia is] a threat to the continuity and safeguarding on Dutch and European soil of crucial technological knowledge and capabilities.”^[2] The ministry added that it found “recent and acute serious governance shortcomings and actions” at Nexperia. The ministry also said, “The [ministry’s] decision [to seize control of Nexperia’s operations in the Netherlands] aims to prevent a situation in which the goods produced by Nexperia (finished and semi-finished products) would become unavailable in an emergency.”

At the same time, the UK government has forced Nexperia to sell its chip factory in Newport, Wales, citing security concerns.

Growing Geopolitical Risk

The political and regulatory scrutiny on U.S. and other international companies for their connections to PRC entities are expected to intensify as U.S.-China competition restructures the global geopolitical landscape.

There are still business opportunities around the world, including China. However, new regulatory and reputational risks are also emerging.

With its extensive expertise on the geopolitical landscape in the Asia-Pacific region and globally, supply chain risks, and regulatory compliance, Pamir is in a position to assist companies navigate the fast-changing business environment.

To discuss your concerns or requirements, get in touch with us today.

^[1] https://selectcommitteeontheccp.house.gov/sites/evo-subsites/selectcommitteeontheccp.house.gov/files/evo-media-document/selling-the-forges-of-the-future.pdf

^[2] https://www.ft.com/content/605e5456-9437-47ff-be6a-edc5c82810f2