White House Report: Chinese Chip Push Threatens US Firms

China's push to develop its domestic semiconductor technology threatens to harm US chip makers and put America's national security at risk, the Obama administration warned in a report released on Friday that called for greater scrutiny of Chinese industrial policy.

China's goal to achieve a leadership position in semiconductor design and manufacturing, including spending $150 billion over a 10-year period, requires an effective response to maintain US competitiveness in the industry, according to the report.

"We found that Chinese policies are distorting markets in ways that undermine innovation, subtract from US market share, and put US national security at risk," the President's Council of Advisors on Science and Technology said in the report.

The US has led the semiconductor industry since it took off in the 1960s. Companies such as Intel Corpand Qualcomm Inc have pushed the technical bounds of innovation in the $300 billion market. In 2015, China didn't have one company among the top 10 industry suppliers. China, nonetheless, isnow the biggest buyer of the electronic components.

The report recommends a strategy that includes countering "innovation-inhibiting" Chinese industrial policy and improving the business environment for US producers. It calls for tighter security measures for the semiconductor sector, viewed as one of the nation's most critical industries because it makes computer chips for everything from smartphones to missiles, satellites to energy grids.

Thereportalso recommends stronger export controls and more stringent and wide-ranging scrutiny of business deals in the sector by the Committee on Foreign Investment in the US, or CFIUS, a panel that reviews foreign acquisitions of US assets for national security threats.

"The current set of strategies pursued by the Chinese government through its policies brings the effectiveness of these tools, as currently applied, into question," the report said.

CFIUS has approved some Chinese deals in recent years, including a bid for the Chicago stock exchange. Most of its dealings are confidential and meetings secret.

Last month, President Barack Obama followed its recommendation and blocked Chinese investors from purchasing the US assets of Aixtron, a German company that makes gallium nitride chip technology. The move followed Germany's decision to disallow the Chinese acquisition of the parent company.