China has tightened another screw in its technological contest with the West. The Ministry of Commerce (MOFCOM) has added new foreign companies to its “Unreliable Entities List”, a tool that bans or restricts transactions with actors deemed harmful to China’s national security. Notably included is TechInsights, a leading Canadian consulting firm specializing in reverse engineering semiconductors, which Beijing attributes a key role in revealing that Huawei used technology and components manufactured by TSMC in its Ascend AI accelerators. The measure also targets companies in the aerospace and defense sector, such as Dedrone by Axon, Epirus, Elbit Systems of America, or BAE Systems, Inc., conveying a clear message: China will not tolerate leaks or cooperation that, in its view, undermine its domestic champions or bolster the military capabilities of its adversaries.
The decision comes after months of public and private investigations focusing on the supply chain of the Ascend 910B/910C chips, especially regarding the origin of the “dies” and the high-bandwidth memory they incorporate. The prevailing thesis in the sector is well-known: despite U.S. restrictions since 2022 limiting Huawei’s access to advanced manufacturing technology, samples and batches of components reportedly reached the company’s products through intermediaries. During this process, Sophgo repeatedly appeared as a bridge client for international foundries. When these connections surfaced, TSMC cut off shipments and faced a scenario of fines and sanctions in the U.S., potentially amounting to around $1 billion, according to market sources.
For Beijing, the TechInsights case has become a model example. The government describes the practices as “malicious” or “detrimental to China’s interests,” a language that hardens the tone compared to previous instances on the same list. Including the Canadian firm and a broad group of Western entities — some specialized in anti-drone systems, electronic warfare, or intelligence — China sends multiple signals: Securing its technological perimeter, dissuading future leaks, and retaliating in a calibrated way against Washington and its allies’ regulatory pressure.
What does being on China’s “Unreliable Entities List” entail?
The inclusion on this goes beyond the traditional “trade ban”. Practically, it can mean prohibitions on transactions with Chinese persons and organizations, investment restrictions, import/export limitations, and crucially, restrictions on information transfer. The latter is especially sensitive for companies like TechInsights, whose business relies on hardware access, labs, and information flows with manufacturers and clients located in China, from Shenzhen to Shanghai.
For the listed defense contractors, the direct impact might be minimal — many already operate with utmost caution — but indirectly, it complicates supply chains, after-sales services, and civil customer programs in China, especially in dual-use areas (public security, aerospace, sensors). Meanwhile, the message also discourages consulting firms, analysts, and laboratories working on chip tear-downs and forensic analysis: the line between legitimate research and adverse actions has become more restrictive.
The Huawei–TSMC case that triggered alarm bells
The core of the matter lies in the traceability of the Ascend chips. Technical reports published over the past year have documented that, despite sanctions, designs and components bearing the TSMC seal — along with HBM and other elements from Samsung and SK Hynix in certain samples — may have been integrated into Huawei’s AI modules. The Ascend 910B became a symbol: the most capable Chinese accelerator in mass production, a domestic alternative to NVIDIA’s GPUs amid hardware rationing for AI. The subsequent Ascend 910C added another layer of complexity by combining dies in advanced package configurations, reinforcing suspicions of prior supplies before sanctions or indirect routes.
From Beijing’s perspective, making this map of the supply chain public isn’t a neutral exercise in technical transparency: it fuels regulatory cases in Washington and weakens the ability of Chinese champions to compete in AI accelerators, as SMIC and other domestic foundries scale up nodes and performance. Conversely, for the U.S., these revelations support the narrative that controls work only when evasions are vigilantly monitored, justifying investigations and fines on links that, intentionally or not, have circumvented the restrictions.
A fragmented landscape: compliance, “de-risking,” and emerging fissures
The double lock — the U.S. Entity List and the Chinese “Unreliable Entities” list — accelerates a pattern of fragmentation. Multinational tech companies operating in both jurisdictions face an increasingly convoluted regulatory compliance puzzle: expanded due diligence, supplier audits, firewalls of data, and in some cases, self-limitation of activities to mitigate risk (the famous “de-risking”).
In semiconductors, the picture is especially tense. On one side, U.S. and allies tighten restrictions on advanced lithography, packaging equipment, and next-gen GPUs through extraterritorial controls. On the other, China responds with export controls on critical minerals (rare earths, gallium, germanium), and now sanctions aimed at companies exposing supply routes or collaborating with strategic rivals. The result is a minefield of legal and operational risks impacting timelines, costs, and roadmaps.
What does this mean for the AI industry?
In the short term, including TechInsights in the list sends a traumatic signal to the entire “chip intelligence” ecosystem: labs, market analysis firms, packaging specialists, and failure analysis. The immediate consequence could be a reduction in public technical disclosures about Chinese chips, slowing down external assessments of Huawei, SMIC, and their supply networks.
For Western manufacturers and suppliers, the measure emphasizes the need for dual traceability: demonstrating that their deliveries and services do not contaminate the supply chain toward sanctioned or sensitive actors in Washington or Beijing. Simultaneously, end clients — hyperscalers, data centers, integrators — will need to recalibrate risk when incorporating Chinese accelerators or components with hybrid assembly, paying particular attention to warranties, firmware updates, and support, especially under the shadow of cross-border sanctions.
A naming pattern that reveals priorities
The list extends beyond the semiconductor realm. It includes companies involved in counter-drone measures, surveillance radars, electronic warfare, or open-source intelligence. This pattern suggests that Taiwan and its military technological superiority in the immediate area remain security priorities for Beijing. Furthermore, it indicates that dual-use technologies — civilian with potential military applications — will stay central to regulatory frictions in the upcoming quarters.
What might happen next?
- Corporate reactions. Some listed companies are likely to announce measures for strengthened compliance, orderly contract exits in China, or legal challenges where feasible.
- New controls. Regulators on both sides of the Pacific could escalate pressure: more stringent licensing, expanded lists, or interpretive guidelines to close loopholes.
- Deterrence effect. Labs and consulting firms conducting chip tear-downs of sensitive chips may become more cautious in publishing supply routes or assignments touching on geopolitical sensitivities.
- Supply chain. Intermediate suppliers exposed to China might consider partial relocations or “China+1” strategies to reduce friction.
Ultimately, Beijing’s move deepens the technological balkanization already influencing the AI race. The practical market impact, beyond headlines, will be greater uncertainty in pricing, timelines, and hardware availability, especially for accelerators and advanced memory. Anyone planning infrastructure in 2026 should consider diversifying and securing long-term contracts with clauses that account for cross-border sanctions and support cuts.
Key insights into this escalation
- It’s not an isolated act: it aligns with new Chinese export controls and the ongoing expansion of U.S. sanctions lists.
- The goal is deterrent: Beijing aims to deter leaks that could feed into files and fines outside its borders.
- The focus is dual: it targets both those exposing chip supply routes and those supplying military capabilities to adversaries.
- Technical transparency diminishes: there will be less visibility into China’s silicon processes and more opacity in material flows.
Frequently Asked Questions (FAQ)
What is China’s “Unreliable Entities List,” and what are its effects?
It’s an MOFCOM sanctions regime that can prohibit transactions, investments, and data transfers between Chinese entities and the listed companies. In extreme cases, it amounts to a total veto of operations with China and blockades of information and services.
Why is TechInsights on the list?
Beijing links its inclusion to the disclosure that Huawei’s Ascend chips incorporated technology and components from TSMC and other suppliers amid sanctions. China views this reverse-engineering and publication as detrimental to its security and development.
Which other companies are highlighted?
Besides TechInsights, aerospace and defense firms such as Dedrone by Axon, Epirus, Elbit Systems of America, and BAE Systems, Inc. are also targeted. The pattern suggests a focus on counter-drone tech, sensors, and dual-use capabilities.
What does this mean for AI hardware availability?
It raises uncertainty. It could slow down technical information flows, tighten compliance controls, and strain supply chains. In the mid-term, expect longer lead times, higher costs, and accelerated vendor diversification.
Sources Consulted
- Announcements and coverage of the expansion of China’s “Unreliable Entities List” and inclusion of TechInsights and defense-related firms.
- Journalistic and market reports on the traceability of Huawei’s Ascend 910B/910C chips, the involvement of TSMC, and Sophgo as an intermediary, along with the risk of fines in the U.S. for TSMC.