A new Center for a New American Security (CNAS) report, titled "The Export Control Loophole Fueling China's Chip Production," names a specific gap in US semiconductor export controls that the think tank says continues to supply Chinese chip fabs with restricted items.

The paper appears in CNAS's "Insights" series on the organization's website. CNAS is a Washington, DC-based national security think tank founded in 2007. It publishes policy analysis on defense, technology competition, and economic security.

What's the policy backdrop?

The publication lands three years after the Bureau of Industry and Security (BIS) imposed the first comprehensive semiconductor export controls on China on October 7, 2022. BIS has updated the rules twice since:

• October 17, 2023: tightened advanced AI chip thresholds, added Chinese entities, and clarified the Foreign Direct Product Rule
• December 2, 2024: added 24 categories of semiconductor manufacturing equipment, restricted high-bandwidth memory (HBM) used in AI accelerators, and designated 140 new entities

The CNAS report isolates one loophole the authors consider the primary channel still feeding Chinese chip output despite the cumulative weight of these rules.

Why a single loophole matters

US chip export controls rest on two legal pillars. The Entity List bars US persons from transactions with designated firms. The Foreign Direct Product Rule extends US jurisdiction to certain foreign-made items that incorporate US-origin technology. The framework's reach depends on identifying items, jurisdictions, and transaction types that fall within US authority.

A single unaddressed gap can carry significant volume. Equipment vendors Applied Materials, Lam Research, KLA, and ASML generated between 30% and 46% of revenue from China between 2022 and 2024. ASML reported China at 46% of system revenue in Q4 2024.

The CNAS report focuses on one named loophole. Its policy implications fall on BIS, which would need to draft a new rule to close the gap, and on allied jurisdictions—the Netherlands, Japan, South Korea, and Taiwan—that have aligned some controls with US measures.

What's the broader market picture?

Chinese chip production capacity has expanded since 2022, with new fab build concentrated in mature nodes at 28 nm and above. SMIC, Hua Hong, and YMTC continue to absorb tools and inputs from both US-allied and non-aligned suppliers.

Each US tightening round has drawn Chinese countermeasures. Beijing imposed export licensing on gallium and germanium in August 2023 and on certain rare earth processing technologies in December 2024.

What does the report change?

A CNAS Insights paper does not bind BIS or any regulatory body. Its policy weight derives from the organization's network of former government officials and its standing in Washington technology-policy circles. Previous CNAS work has shaped debate on AI compute policy, CHIPS Act implementation, and outbound investment screening.

For the equipment industry, the report adds to a growing pressure to comply with tightening rules. For Chinese fabs, it raises the prospect of another BIS rule update targeting the named gap, likely within months given the pace of recent cycles.