The U.S. has fine-tuned its export controls to slow Beijing’s military modernization efforts, unveiling restrictions that will make it more difficult for American companies to sell semiconductor chips to China.
The Commerce Department’s Bureau of Industry and Security (BIS) announced the update on Tuesday, to halt the transfer of semiconductors and chip-making equipment that could advance the technological capabilities of the People’s Liberation Army.
Beijing hit back at the move on Wednesday.
“The United States has constantly overstretched the concept of national security, abused export control measures and resorted to unilateral bullying, which China is strongly dissatisfied with and firmly objects to,” said a spokesperson for the Ministry of Commerce quoted in China Daily.
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In October 2022, the BIS announced a package of restrictions designed to slow down China’s advancement in artificial intelligence and quantum computing by acquiring cutting-edge semiconductor technology made by the U.S. and its allies.
Nazak Nikakhtar, former assistant secretary for industry and analysis at the Department of Commerce, told Newsweek that the 2022 rules left a loophole for Chinese tech companies to gain access to “less important technology.”
She said China’s leading semiconductor company, SMIC, had made a breakthrough “due to U.S. regulators not controlling what they perceived as less important technology. What China accomplished was to take these ‘less important’ technologies and innovate on top of them to deliver breakthrough machines that produce leading-edge chips.
“China will soon be using these leading-edge chips in its military systems.”
The update to the restrictions will create a “gray list” under which companies need to inform Washington if they want to sell certain less advanced chips to China, Iran or other countries subject to a U.S. arms embargo.
The new rules will also halt the shipment of the most advanced chips to Chinese data centers, which have been using them to improve AI technologies. These technologies have direct military applications, including guiding systems for hypersonic missiles.
There has been widespread speculation in Washington that SMIC managed to evade export controls to develop its Kirin 9000s chip—which is used in Huawei’s latest smartphone, the Mate 60 Pro.
It is thought that various Chinese semiconductor companies might have used the Chinese territory of Macau to circumvent the rules. A clause in the new restrictions aims to prevent this.
“Today’s updated rules will increase the effectiveness of our controls and further shut off pathways to evade our restrictions,” said Secretary of Commerce Gina Raimondo on Tuesday.
“These controls maintain our clear focus on military applications and confront the threats to our national security posed by the PRC government’s military-civil fusion strategy.”
The Center for International and Strategic Studies, a Washington think tank, published a report earlier this month saying SMIC had “set up a network of shell companies and partner firms in China through which it has been able to continue acquiring U.S. equipment and components by deceiving U.S. exporters.”
Gregory Allen, the report’s author, warned: “With the current staffing and budget given to the Department of Commerce for export controls, there are reasons to doubt that the U.S. government can identify shell companies at the rate that Huawei, SMIC and their partners can create them.”
The three leading U.S. chip companies—Nvidia, Intel and Qualcomm—have previously lobbied the Biden administration in an attempt to dissuade it from introducing tougher regulations. They said these would only reduce the dependence of the Chinese companies on the U.S. and push them towards innovating their own solutions.
The U.S. Semiconductor Industry Association said in a statement on Tuesday: “Overly broad, unilateral controls risk harming the U.S. semiconductor ecosystem without advancing national security as they encourage overseas customers to look elsewhere. Accordingly, we urge the administration to strengthen coordination with allies to ensure a level playing field for all companies.”
Rep. Raja Krishnamoorthi (D-IL), ranking member on the House committee on strategic competition with the Chinese Communist Party, told Newsweek the latest measures were “a big step forward in providing a lasting framework to stand up against CCP aggression for America’s values.”
He added: “We cannot decouple our economy from the People’s Republic of China, but we can engage in a commonsense way that protects America’s interests.”