Despite Embargoes Chinese Chip Manufacturers Acquired Manufacturing Technology Worth 38 Billion US Dollars in 2024

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Despite all the restrictions designed to prevent the sale of advanced manufacturing technologies to China, Chinese chip manufacturers have been able to purchase equipment and machinery worth almost 40 billion US dollars from the USA and allied markets. This is the conclusion of a report by the Special Committee on China of the US House of Representatives.

Democratic and Republican administrations in the US have stepped up efforts in recent years to restrict China's ability to manufacture advanced microchips. However, inconsistencies in the regulations issued by the US, Japan and the Netherlands have led to non-US tool and equipment manufacturers selling their products on a large scale to Chinese companies that are actually subject to the embargo regulations. This was reported by the news agency Reuters, citing a corresponding report by the US House of Representatives' Special Committee on China.

Additional Technology Purchases Higher Than in the Year of the Embargo Introduction

One of the main reasons for this is that, in the first instance, only certain companies were blacklisted and not allowed to sell directly to them. Chinese companies circumvent this by acquiring the technologies through subsidiaries—partly within mainland China and partly through foreign subsidiaries. The committee therefore called for broader bans on the sale of chip manufacturing tools to China as a nation per se, rather than tighter bans on specific Chinese chip manufacturers.

According to the report obtained by Reuters, Chinese companies acquired $38 billion worth of equipment from five leading semiconductor manufacturing technology providers last year without breaking any laws. This represents a 66 percent increase from 2022—the year in which much of the export restrictions on tools and manufacturing machinery were introduced. According to the report, this accounted for almost 39 percent of total sales from manufacturing technology manufacturers Applied Materials, Lam Research, KLA, ASML and Tokyo Electron.

"These sales have made China increasingly competitive in the manufacture of a wide range of semiconductors, with profound implications for human rights and democratic values worldwide," the report says.

In an interview, Mark Dougherty, president of Tokyo Electron's U.S. branch, said the industry's sales in China have declined this year in part due to new regulations and welcomed greater coordination between the U.S. and Japanese governments. "I think it's clear from a U.S. perspective that there is an outcome that is still being sought but has not yet been achieved," Dougherty told Reuters.

Applied and Lam did not respond to a request for comment. ASML and KLA said they could not comment until they had seen the full report. The Committee stated that the tool manufacturers had cooperated with the Committee in the preparation of the report and had been informed of its findings.

China Uses Embargo Loopholes to Conquer Manufacturing Sector

Three Chinese companies in particular, which were not previously part of the embargo blacklists, have become major customers of tool and equipment manufacturers in recent years: SwaySure Technology Co, Shenzhen Pengxinxu Technology Co and SiEn (Qingdao) Integrated Circuits Co. According to the report, this rise of the three companies "gives rise to particular security concerns."

These three companies have been an issue in the US committee since last year at the latest. Two members of the Congressional Committee, Republican John Moolenaar and Democrat Raja Krishnamoorthi, named these companies in a letter to the Department of Commerce as part of an alleged "secret network that supports Huawei Technologies". In December 2024, the Department of Commerce ruled that exports to these companies would also be banned from then on.

One could be forgiven for thinking that the report fundamentally calls into question the effectiveness of the embargo efforts which were launched in 2019 under the first administration of US President Donald Trump—at that time still exclusively at component and part level. Nevertheless, the committee's summary recommendation is to stick with it. Instead, the verdict is that closer cooperation between the allies and more comprehensive restrictions are necessary, including for components that China could use to build its own chip production facilities.

"China is trying to reshape the entire supply chain," Craig Singleton, Senior Fellow at the think tank Foundation for Defense of Democracies, told Reuters, commenting on the report. "What used to be niche areas is now a battleground."(sg)

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