By Stephen Nellis SAN FRANCISCO (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, Lam Research, KLA, ASML and Tokyo Electron, 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 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." (Reporting by Stephen Nellis in San FranciscoEditing by Shri Navaratnam)
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