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U.S. lawmakers call for broader bans on chipmaking tool

sales to

China

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Chinese firms bought $38 billion in chipmaking equipment

last

year

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Industry sales to China decline in part due to new rules,

says

Tokyo Electron U.S. president

By Stephen Nellis

SAN FRANCISCO, Oct 7 (Reuters) - Gaps in efforts by the

U.S. and allies to restrict China's ability to manufacture

advanced computing chips have allowed China to buy nearly $40

billion of sophisticated chipmaking gear, according to a

bipartisan investigation by U.S. lawmakers.

U.S. Democratic and Republican administrations have tried to

restrict China's ability to make microchips, viewing the

industry as crucial for national security.

But inconsistencies in rules issued by the United States,

Japan and the Netherlands have led to non-U.S. toolmakers

selling to some Chinese firms that U.S. companies could not,

according to a report by the U.S. House of Representatives

Select Committee on China seen by Reuters.

The committee called for broader bans by the group of allies

on chipmaking tool sales to China, rather than narrower bans of

specific Chinese chipmakers.

Chinese firms last year bought $38 billion in equipment from

five top semiconductor manufacturing equipment suppliers,

without breaking the law, a 66% increase from 2022, when many of

the tool export restrictions were introduced. It also accounted

for nearly 39% of the aggregate sales of Applied Materials ( AMAT )

, Lam Research ( LRCX ), KLA, ASML

and Tokyo Electron ( TOELF ), the report found.

The U.S., citing national security concerns, is targeting

China's ability to make state-of-the-art chips because they are

crucial to fields such as AI and military modernization. The two

economic superpowers are also vying to sell advanced technology

such as AI data centers to other nations.

"These are the sales that made China increasingly

competitive in the manufacture of a wide range of

semiconductors, with profound implications for human rights and

democratic values around the world," the report said.

In an interview, Mark Dougherty, president of Tokyo

Electron's ( TOELF ) U.S. unit, said the industry's China sales have

started to decline this year, in part due to new regulations and

welcomed more coordination between the U.S. and Japanese

governments.

"I think it's clear, from a U.S. perspective, there's an

outcome that is still desired that 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 seeing the report

in full. The committee said that the toolmakers cooperated with

the committee on the report and were informed of its findings.

Three Chinese firms that have become major customers of

toolmakers - SwaySure Technology Co, Shenzhen Pengxinxu

Technology Co and SiEn (Qingdao) Integrated Circuits Co - are of

particular security concern. They were flagged last year by the

congressional committee's leaders, Chairman John Moolenaar, a

Michigan Republican, and Ranking Member Raja Krishnamoorthi, an

Illinois Democrat, in a letter to the Commerce Department

alleging ties to a secret network aiding Huawei Technologies,

and U.S. officials barred exports to them in December.

The report recommended tighter coordination among allies and

broader restrictions, including on components China could use to

build its own chipmaking tools.

"China is attempting to rewrite the entire supply chain,"

said Craig Singleton, a senior fellow at the Foundation for

Defense of Democracies, a think tank. "What used to be niche

tool segments are now battlegrounds."