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Moolenaar, Krishnamoorthi Urge Action Against Huawei's Clandestine Chip Network

October 16, 2024

WASHINGTON, D.C.-- Chairman John Moolenaar (R-MI) and Ranking Member Raja Krishnamoorthi (D-IL) of the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party today sent a letter to Commerce Secretary Gina Raimondo urging Commerce to continue taking action to address the national security threat of Huawei by addressing its buildup of clandestine semiconductor facilities used to circumvent US law, and restrict the flow of US-produced semiconductor manufacturing equipment (SME) to Huawei and its clandestine chip network.

The lawmakers write, "You have long been a leader in raising alarm about the threat posed by Huawei’s chip capacity... Just as you have taken steps to prohibit Huawei from purchasing U.S. chips, it is similarly important and logical to restrict the flow of SME to prevent Huawei from fabricating its own chips. Restricting the flow of SME to Huawei’s clandestine network of semiconductor companies will send an important signal to both the PRC and Huawei that the United States will take appropriate action to prevent U.S. technology from enabling its problematic technology ambitions."

The lawmakers revealed that, Huawei has been circumventing restrictions imposed by the Commerce Department but utilizing chip firms like Pengxinxu, SwaySure Technology, Qingdao SiEn, and potentially many others, none of which are currently listed on the Department of Commerce’s Entity List. 

Previously, Commerce added Huawei's clandestine semiconductor firm, PXW Semiconductor, to the Entity List. Now, the lawmakers say, it is time to consider adding PXW's sister companies to the Entity List as well. 

The lawmakers argue, "PXW Semiconductor’s sister firm, SwaySure, which reportedly is developing advanced memory chips for AI, is understood to be ultimately controlled by the Shenzhen State-owned Shenzhen Major Industrial Investment Group Co., Ltd., the same entity that controls PXW (on the entity list), with SwaySure also being run by former Huawei executives and reportedly engaging in “supply chain collaboration and research” with Huawei.

"Pengxinxu is also believed to be ultimately run by the Shenzhen Major Industrial Investment Group Co., Ltd., and PRC media has said PXW, SwaySure and Pengxinxu are all pillars of the Shenzhen government’s buildout of its semiconductor capacity.

"Given that PXW Semiconductor was added to the Entity List based on “information that this company represents a risk of diversion to a party on the BIS Entity List” it stands to reason its sister companies, which are also suppliers in the semiconductor industry, and openly reported close connections with Huawei would carry the same risk."

Click HERE to view the letter or read the text of the letter below. 

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We write to respectfully seek your agency’s urgent action to address Huawei’s rapid buildout of semiconductor fabrication facilities and address attempts by Huawei to conceal its involvement with these facilities as part of an effort by the company to circumvent restrictions imposed by your agency. These facilities still rely on a large amount of U.S.-produced manufacturing equipment (SME), which provides the United States with an opportunity to deny Huawei its chip ambitions. Such ambitions clearly threaten our national security.

You have long been a leader in raising alarm about the threat posed by Huawei’s chip capacity. In 2023, you described reports that Huawei had potentially used U.S. SME to manufacture advanced semiconductors as “deeply disturbing.” Earlier this year Commerce reportedly took the important step of revoking licenses for U.S. companies to ship their chips to Huawei’s smartphone division. Just as you have taken steps to prohibit Huawei from purchasing U.S. chips, it is similarly important and logical to restrict the flow of SME to prevent Huawei from fabricating its own chips. Restricting the flow of SME to Huawei’s clandestine network of semiconductor companies will send an important signal to both the PRC and Huawei that the United States will take appropriate action to prevent U.S. technology from enabling its problematic technology ambitions. It will also demonstrate to our allies and partners the seriousness and fairness with which the U.S. Government executes its export control policy. 

Failing to do so will only benefit a small group of American companies producing SME at the expense of chipmakers worldwide who cannot sell their chips, undermining the intent of the Huawei listing, and harm our national security.  

Huawei’s clandestine chip network appears to include firms such Pengxinxu (鹏新旭) SwaySure Technology (昇维旭) Qingdao SiEn (芯恩 -青岛), and potentially many others, none of which are currently listed on the Department of Commerce’s Entity List. Despite one of Huawei’s clandestine entities – PXW Semiconductor – which was quickly and correctly put on the Entity List in 2022, Huawei has likely turned to other firms to meet its semiconductor needs. Knowledge of these firms and their close connections to Huawei have been repeatedly described in public news reports, including by conducting physical site visits to ascertain these firms’ connections with Huawei.

For example, PXW Semiconductor’s sister firm, SwaySure, which reportedly is developing advanced memory chips for AI, is understood to be ultimately controlled by the Shenzhen State-owned Shenzhen Major Industrial Investment Group Co., Ltd., the same entity that controls PXW (on the entity list), with SwaySure also being run by former Huawei executives and reportedly engaging in “supply chain collaboration and research” with Huawei. Pengxinxu is also believed to be ultimately run by the Shenzhen Major Industrial Investment Group Co., Ltd., and PRC media has said PXW, SwaySure and Pengxinxu are all pillars of the Shenzhen government’s buildout of its semiconductor capacity. Given that PXW Semiconductor was added to the Entity List based on “information that this company represents a risk of diversion to a party on the BIS Entity List” it stands to reason its sister companies, which are also suppliers in the semiconductor industry, and openly reported close connections with Huawei would carry the same risk.

We must continue in our efforts to deny Huawei, and similar firms, the ability to access U.S. technology that undermines our national security. Given the clear ties of the aforementioned firms to Huawei and the PRC government, we ask that you move quickly to deny Huawei’s ability to use U.S. SME to build its own semiconductor capabilities.  We applaud your work to reportedly address these issues in coordination with allies and partners. However, we remain concerned the drawn-out negotiations have let Huawei continue to stockpile the SME necessary for reconstituting their supply chains.  

We appreciate the significant steps Commerce has taken to date on Huawei and look forward to hearing your response.