(March 20): The Biden administration is considering blacklisting a number of Chinese semiconductor firms linked to Huawei Technologies Co after the telecom giant notched a significant technological breakthrough last year, people familiar with the matter said.

Such a move would mark another escalation in a US campaign to ringfence and curtail Beijing’s artificial intelligence (AI) and semiconductor ambitions. It would ratchet up the pressure on a Chinese national champion that’s made advances despite existing sanctions, including producing a smartphone processor last year that many in Washington thought beyond its capabilities.

Most of the Chinese entities that could be affected were previously identified as chipmaking facilities acquired or being built by Huawei in a presentation by the Washington-based trade group Semiconductor Industry Association, according to people familiar with the matter. No final decisions have been made, the people said. Bloomberg News first reported about SIA’s presentation in 2023.

The companies that could be blacklisted include chipmakers Qingdao Si’En, SwaySure, and Shenzhen Pensun Technology Co, or PST, the people said, asking not to be named because they weren’t authorised to discuss non-public information. Biden officials are also weighing sanctions on China’s leading memory chipmaker, ChangXin Memory Technologies Inc.

“Adding more Chinese companies to the US Entity List is a highly likely event,” Jefferies analyst Edison Lee wrote after ChangXin was identified as a potential target. “It is easy to implement and justify, and it will further block certain key Chinese companies from being able to exploit current loopholes in export restrictions.”

Beyond companies that actually produce chips, US officials may also sanction Shenzhen Pengjin High-Tech Co, according to the people, as well as SiCarrier, one of the people said. The concern is that those two companies, which make semiconductor manufacturing gear, are acting as proxies to help Huawei obtain restricted equipment, according to the person. Bloomberg News first reported on the companies’ ties to Huawei in late 2023.

The US government is pressing allies including the Netherlands, Germany, South Korea and Japan to further tighten restrictions on China’s access to semiconductor technology. Huawei is one of the companies at the heart of that campaign, as well as Beijing’s efforts to reduce its reliance on Western technology.

It isn’t clear whether the Commerce Department, which administers the so-called entity list, has additional evidence linking the companies to Huawei, the people said. The US has the authority to sanction businesses that are at risk of harming its national security in the future, and officials don’t necessarily need to prove past harmful or illegal activity.

The White House’s National Security Council and Commerce Department’s Bureau of Industry and Security declined to comment. Representatives for the individual Chinese companies and the Ministry of Commerce didn’t respond to messages seeking comment. The Ministry of Foreign Affairs reiterated that it “resolutely opposes” US actions that disrupt market order and harms Chinese enterprises, but didn’t comment specifically on the potential US moves under deliberation.

It’s uncertain when US officials will make a final decision, the people said, emphasising that timing will likely depend on the status of relations between Washington and Beijing — which both sides have worked to improve in recent months. Treasury Secretary Janet Yellen is expected to visit China again in 2024, and top officials have discussed a phone call between President Joe Biden and Chinese leader Xi Jinping sometime this spring.

There are also other policy considerations, such as when the White House will announce a long-awaited adjustment of sweeping China tariffs first imposed under former president Donald Trump. Officials are also considering raising duties on older-generation chips from China, according to people familiar with the matter who said those conversations have picked up in recent weeks.

Huawei was added to the entity list in 2019, meaning it can’t purchase American technology unless sellers obtain a special export license from the Commerce Department. While those sanctions kneecapped Huawei’s smartphone business for years, the company unveiled in August a Mate 60 device powered by a 7-nanometer chip made in China — and began selling the phone while Commerce Secretary Gina Raimondo was visiting the country.

The processor was manufactured by Semiconductor Manufacturing International Corp, though it still relied heavily on foreign technology — including tools from Dutch equipment giant ASML Holding NV and American suppliers Applied Materials Inc and Lam Research Corp. The use of those tools, which were purchased before US and Dutch export controls went into effect, indicates that China still can’t entirely replace foreign components even as Beijing tries to build a full domestic semiconductor supply chain.

BIS has said it’s probing the “purported” 7-nm chip, and Raimondo has vowed the “strongest possible” actions to protect US national security. Republican lawmakers, meanwhile, have demanded the Biden administration completely cut off Huawei and SMIC’s access to US suppliers.