The Chinese government is a world-class force for cheating and promise-breaking. The 2019-2020 takeover of Hong Kong in violation of the 1984 Sino-British Joint Declaration guaranteeing Hong Kong’s autonomy is one example. Falsely claiming “developing nation” status at the World Trade Organization despite being the world’s second largest economy is another. In 2014, President Xi promised President Obama he would stop the militarization of the South China Sea. That hasn’t happened. Nor has the Chinese government followed through on its 2020 commitment to ramp up purchases of American products, buying almost none of the additional $200 billion of exports the deal called for.
So why does the Commerce Department think that China’s recent cooperation with end-user checks on American technology exports is being done in good faith?
Recall that on October 7, the Commerce Department moved YMTC and 31 other Chinese companies in the semiconductor sector to the Unverified List (UVL) – a move to stop these companies from harming America’s national security. As China Tech Threat said at the time, it signaled “a new era of enforcement” regarding Commerce’s approach to national security.
But is the new era of enforcement already over?
As part of the new restrictions, the Commerce Department made clear that these companies had 60 days from that date to comply with a series of end-user checks designed to prove that they were not using American technologies in prohibited ways, or else they would be moved to the Entity List. In November, Bureau of Industry and Security (BIS) Assistant Secretary Matthew Axelrod said that companies currently on the Bureau’s Unverified List (UVL), including YMTC, “are now at risk of moving to the Entity List as soon as December 6 … if we are unable to complete an end-use check by then.”
December 6 came and went with no news from the Commerce Department. Why is that? According to Bloomberg, China has been cooperating with the Commerce Department’s mandated end-user checks. That same day, Under Secretary for the Bureau of Industry and Security Alan Estevez explained at a CSIS event: “We are seeing better behaviour. Mofcom (The Chinese Ministry of Commerce) has been more forthcoming…We’re seeing a change in attitude …It’s not the first time we’ve seen a such a change in attitude, so it depends on how long that is sustained.”
This sounds nice, but praising “better behavior” and “changes in attitude” is not a strategy that will protect America’s national and economic security. YMTC is a dangerous company. That’s why bipartisan leaders on Capitol Hill are trying to make sure its chips never come near the federal government’s systems, and are increasingly in agreement that it get added to the Entity List. Its threat profile is only growing commensurate with its technological advances, and other PRC national champion chipmakers like CXMT are following its playbook. Do we really think we need more time to look into YMTC?
The great danger with the Commerce Department’s apparent satisfaction with China’s cooperation to date is the high possibility that Chinese government, as it has done in so many other cases, is telling Commerce Department authorities what they want to hear and showing them what they want to see. There’s a great risk YMTC is allowing pro forma checks until it can go back to supplying bad actors like the Chinese government and Hikvision and putting Western memory chip firms out of business.
Former Acting Under Secretary of BIS Nazak Nikakthar anticipated this problem when she told China Tech Threat on November 15, “It’s great if China authorizes end-use checks, but are they going to constrain our ability to go in there and do…full comprehensive check that we need to make sure that the terms and conditions of the license are adhered to? And are we going to be satisfied when we walk away from the end-use checks to make sure that none of the books and materials that we reviewed are doctored? I think the result of that is very likely to be no.”
At a minimum, the Commerce Department needs to establish that China’s compliance is credible. It must provide an update on whether the end-user checks are being accomplished as designed, and which firms are being examined.
The Commerce Department already erred once in moving too slowly to take action against YMTC, allowing the company the time to develop an advanced 232-layer chip. History shouldn’t be allowed to repeat itself. Commerce needs to hurry up and follow through on what it started by moving YMTC to the Entity List. For decades, American leaders have been hoodwinked by the Chinese government’s false promises. Under Secretary Estevez and his team mustn’t fall into the same trap.