World

Unlocking China’s Chipmaking Edge: How Loopholes Enabled $40 Billion in Tech Sales

U.S. investigation reveals China‘s $40B chip tech acquisition due to policy gaps. Lawmakers seek broader allied bans.

October 7, 2025, 4:18 PM

Tweezers holding a microchip bearing the Chinese flag over a dark blue circuit board filled with electronic components.

A Central Processing Unit (CPU) or Graphics Processing Unit (GPU) microchip with the Chinese flag is being placed onto a motherboard, symbolizing China's superiority in the global supply chain. By William Potter / Shutterstock.com.

Executive Summary

A bipartisan U.S. investigation found significant gaps in allied restrictions, enabling Chinese firms to acquire nearly $40 billion in advanced computing chip manufacturing equipment.

Non-U.S. companies exploited these regulatory discrepancies, selling $38 billion in chipmaking equipment to China in 2023, a 66% increase from 2022.

The U.S. House Select Committee on China recommends broader, allied bans on chipmaking tool sales to Beijing and tighter coordination to address national security concerns.

The Story So Far

The United States views China’s ability to produce advanced computing chips as a critical national security concern, particularly due to their importance for artificial intelligence and military modernization, leading both Democratic and Republican administrations to implement export restrictions. However, these efforts have been undermined by significant policy gaps and a lack of coordination among allies like Japan and the Netherlands, which has allowed non-U.S. companies to continue supplying sophisticated chipmaking equipment to Chinese firms despite U.S. prohibitions.

Why This Matters

A bipartisan investigation has revealed significant gaps in allied restrictions on China’s advanced computing chip manufacturing, allowing Chinese firms to acquire nearly $40 billion in sophisticated equipment in 2023 and undermining U.S. national security objectives. This has prompted calls for broader, coordinated bans on chipmaking tool sales to Beijing, including components China could use to construct its own tools, signaling an escalation in the technological competition between the two economic superpowers.

Who Thinks What?

The U.S. House of Representatives Select Committee on China believes that current allied restrictions on chipmaking technology are insufficient, allowing China to acquire nearly $40 billion in sophisticated equipment, which poses a significant national security risk, and advocates for broader, coordinated bans.

Non-U.S. toolmakers from countries like Japan and the Netherlands have exploited regulatory inconsistencies to sell advanced chipmaking equipment to Chinese entities, though some industry representatives acknowledge that new regulations are now causing sales to decline and express a desire for greater government coordination.

China is actively leveraging existing policy gaps to acquire advanced computing chip manufacturing capabilities, aiming to become increasingly competitive in semiconductor production and rewrite the global supply chain, which the U.S. views as a critical national security issue.

A bipartisan investigation by U.S. lawmakers has revealed significant gaps in restrictions aimed at limiting China’s advanced computing chip manufacturing capabilities, allowing Chinese firms to acquire nearly $40 billion in sophisticated chipmaking equipment. The U.S. House of Representatives Select Committee on China found that inconsistencies in rules among the United States, Japan, and the Netherlands have enabled non-U.S. toolmakers to sell to Chinese entities that American companies are barred from supplying. The committee is now advocating for broader, allied bans on chipmaking tool sales to Beijing.

Policy Gaps and Financial Flows

Despite efforts by both Democratic and Republican administrations to curb China’s microchip industry due to national security concerns, the report indicates that non-U.S. companies have exploited regulatory discrepancies. These sales, totaling $38 billion in 2023, represent a 66% increase from 2022, the year many export restrictions were initially implemented. This amount accounted for nearly 39% of the aggregate sales from five major semiconductor manufacturing equipment suppliers: Applied Materials, Lam Research, KLA, ASML, and Tokyo Electron.

National Security Implications

The United States views China’s ability to produce state-of-the-art chips as a critical national security issue, particularly given their importance to advancements in artificial intelligence and military modernization. The report highlighted the profound implications for human rights and democratic values worldwide, stating that these sales have made China “increasingly competitive in the manufacture of a wide range of semiconductors.” The two economic superpowers are also competing to sell advanced technology, such as AI data centers, to other nations.

Industry Response and Specific Concerns

Mark Dougherty, president of Tokyo Electron’s U.S. unit, acknowledged that industry sales to China have begun to decline this year, partly due to new regulations. He expressed a desire for greater coordination between the U.S. and Japanese governments, noting that “from a U.S. perspective, there’s an outcome that is still desired that has not yet been achieved.” The report specifically flagged three Chinese firms—SwaySure Technology Co, Shenzhen Pengxinxu Technology Co, and SiEn (Qingdao) Integrated Circuits Co—as being of particular security concern, alleging ties to a network aiding Huawei Technologies, which led to U.S. export bars in December.

Recommendations and Future Outlook

The U.S. House Select Committee on China has recommended tighter coordination among allies and the implementation of broader restrictions. These proposed measures would extend to components China could use to construct its own chipmaking tools, aiming to close existing loopholes. Craig Singleton, a senior fellow at the Foundation for Defense of Democracies, commented on China’s ambition, stating, “China is attempting to rewrite the entire supply chain… What used to be niche tool segments are now battlegrounds.”

The congressional findings underscore the ongoing challenges in effectively restricting China’s access to advanced chip technology. The call for enhanced allied coordination and expanded bans reflects a persistent concern within U.S. policy circles regarding Beijing’s technological ambitions and their potential global implications.