The United States says these restrictions are separate from the retaliatory sanctions it has imposed on China to prevent the latter from getting hands on semiconductor technology. Moreover, Washington is apprehensive about China using these materials to make weapons and to facilitate the ruling Communist Party’s surveillance and human rights abuses. Beijing is looking for a more serious response to the new restrictions. The Chinese Communist Party has invested billions of dollars to develop its own chip industry, but its vendors still need foreign manufacturing equipment, raw materials and other technology. Industry experts say Chinese producers are improving, but they cannot make chips required for the most advanced smartphones and other products.

Effective last December, the Industry and Security Bureau has incorporated rules to formalize the restrictions. The Department of Commerce is amending the Export Administration Regulations (EAR) by adding thirty-six entities to the Entity List. These entities have been determined by the US Government to be acting contrary to the national security or foreign policy interests of the United States and will be listed on the Entity List under the destinations of China. According to American legislation, the Entity List identifies entities for which there is reasonable cause to believe, based on specific and articulable facts, that the entities have been involved, are involved, or pose a significant risk of being or becoming involved in activities contrary to the national security or foreign policy interests of the United States.

For instance, it was determined to add PXW Semiconductor Manufactory Co., Ltd. under the destination of China to the Entity List for posing a significant risk of becoming involved in activities contrary to the national security or foreign policy interests of the United States. It was deemed that the conduct of PXW Semiconductor Manufactory Co., Ltd. raises sufficient concern that prior review of exports, reexports, or transfers (in-country) of items subject to the EAR involving this entity, and the possible imposition of license conditions or license denials on shipments to the entity, will enhance the Bureau of Industrial Security's ability to prevent violations of the EAR.

More sanctions are expected against China this year. Last October, the US imposed restrictions on AI chips and semiconductor manufacturing equipment. The American government believes it has to address some big gaps that need to be closed fast. Among the key products to be restricted is wafer fabrication equipment in which the US is the current leader. It has a majority share in processes like deposition, etch, process control, CMP, and ion implantation. However, the worry of American equipment manufacturers is that if the US imposes restrictions on these equipments, their overseas competitors, especially from The Netherlands and Japan, will gain market share and blunt the impact of the technology restrictions. In fact, China also began to toy with the idea of connecting with non-American manufacturers. However, in the meantime, the US reached an understanding with the two countries on increasing restrictions on China. 

The US, Japan, and the Netherlands are also in discussions to restrict China’s access to lithography equipment over the last few months. The question remains, how far do these restrictions go, and what do they contain? As of now, it is believed that the tripartite agreement is yet to be formalized in ink, but the three countries have agreed to move forward. There is talk of some other non-lithography tools being supposedly included in the restrictions list. According to technical studies in the US, the primary avenue to restrict China’s access to semiconductors is with equipment. While there is a tri-lateral agreement for blocking access to DUV lithography, there is no mention of how far back this goes. DUV is a very broad technology that includes Krypton fluoride (KrF), Argon Fluoride (ArF), and Argon Fluoride Immersion (ArFi) lithography.