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CNAS Insights | The Export Control Loophole Fueling China's Chip Production | CNAS
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Relevant to compute governance discussions, this CNAS piece addresses how semiconductor export control policy weaknesses may undermine efforts to limit China's AI and military hardware development, a key concern in AI safety governance debates.
Metadata
Importance: 55/100policy briefcommentary
Summary
This CNAS commentary examines gaps in U.S. export control policy that allow China to continue advancing its semiconductor manufacturing capabilities despite restrictions. It analyzes how existing loopholes undermine the intent of chip export controls aimed at limiting China's access to advanced computing hardware relevant to AI and military applications.
Key Points
- •U.S. export controls on semiconductors contain loopholes that China exploits to sustain and grow domestic chip production capacity.
- •The commentary highlights specific policy gaps that allow restricted technologies or their equivalents to reach Chinese manufacturers indirectly.
- •Effective AI governance and compute governance require closing these loopholes to meaningfully constrain China's AI hardware capabilities.
- •The analysis underscores the difficulty of enforcing export controls in a globalized supply chain with multiple intermediary actors.
- •Policy recommendations likely include tighter enforcement mechanisms and broader multilateral coordination to close identified gaps.
Cited by 2 pages
| Page | Type | Quality |
|---|---|---|
| AI Policy Effectiveness | Analysis | 64.0 |
| US AI Chip Export Controls | Policy | 73.0 |
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This week, Reuters reported that China has apparently [built a prototype](https://www.reuters.com/world/china/how-china-built-its-manhattan-project-rival-west-ai-chips-2025-12-17/) of an extreme ultraviolet lithography (EUV) system, a highly intricate machine used to produce cutting-edge AI chips that the United States and its allies had successfully kept out of Chinese hands for years. While the news may suggest China is closing the gap, Beijing has a [track record](https://x.com/dnystedt/status/2001448412458500412?s=20) of [overstating](https://www.chinatalk.media/p/billion-dollar-heist-how-scammers) semiconductor equipment breakthroughs. Even taking this claim at face value, the prototype [reportedly](http://reuters.com/world/china/how-china-built-its-manhattan-project-rival-west-ai-chips-2025-12-17/) won’t reach commercial viability until 2030 at the earliest. While policymakers should take China’s ambitions seriously, the real threat is its easy access to older lithography equipment that can still produce advanced AI chips at scale. The Trump administration must close this loophole to deny China’s ability to scale chip production and protect U.S. chipmakers’ global edge.
Until recently, only one company in the world was thought capable of manufacturing an EUV system: the Dutch semiconductor manufacturing giant ASML. In 2019, the first Trump administration presciently worked with the Dutch government to [deny China](https://www.csis.org/analysis/contextualizing-national-security-concerns-over-chinas-domestically-produced-high-end-chip?utm_source=chatgpt.com) access to ASML’s EUV tools. This strategy has been remarkably successful, forcing China into years of expensive attempts at [reverse-engineering](https://www.trendforce.com/news/2025/10/24/news-china-reportedly-damaged-duv-machine-in-reverse-engineering-called-asml-for-help/?utm_source=chatgpt.com) and domestic development. But while China struggles to develop and scale EUV, it’s quietly exploiting a loophole in export controls that allows unchecked access to previous-generation equipment.
Chinese chipmakers have discovered how to enhance older equipment—deep ultraviolet immersion lithography (DUVi) tools that aren’t subject to such restrictions—to make chips that come uncomfortably close to the cutting edge. In recent years, Chinese chipmakers have learned to apply a process called multipatterning to DUVi equipment to produce smaller and more powerful chips. This process dramatically [reduces yields](https://www.semi.org/en/changes-and-challenges-abound-multi-patterning-lithography), makes chip production slower and more costly, and still can't match the cutting-edge chips from U.S. and allied chipmakers. Yet deploying these techniques at scale could allow China to fabricate enough chips to accelerate its AI progress.
A key loophole in the U.S. semiconductor manufacturing equipment export control regime is allowing China to make advanced chips using older
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