The Department of Commerce building is seen before an expected report of new home sales numbers in Washington, U.S., January 26, 2022. REUTERS/Joshua Roberts

By Karen Freifeld

(Reuters) -The U.S. on Monday cracked down on companies in China and other countries that use subsidiaries or other foreign affiliates to get around curbs on chipmaking equipment and other goods and technology.

The Commerce Department issued a new rule expanding its restricted export list, known as the Entity List, to automatically include subsidiaries owned 50 percent or more by a company on the list, according to a posting in the U.S. Federal Register. The action greatly increases the number of companies that require licenses to receive American goods and services.

The rule is likely to disrupt supply chains. It will also make it more difficult for companies to determine whether exports to a customer or supplier are restricted. According to the rule, certain transactions may be allowed for 60 days.

China's Commerce Ministry strongly criticized the rule.

"This move by the U.S. is extremely egregious in nature," the ministry said in a statement. "It seriously infringes upon the legitimate rights and interests of the affected enterprises, severely disrupts international economic and trade order and gravely undermines the security and stability of global industrial and supply chains."

The timing of the rule's release is somewhat surprising, given that the U.S. and China are in the midst of trade talks. The action strengthens export controls on China, a contrast to the U.S.'s recent loosening of controls on AI chips to China like Nvidia's H20.

If a company is owned 50 percent or more by an entity on the list, licenses will be required for U.S. exporters to ship goods or technology to the subsidiary, just as they are for listed entities, with many licenses likely to be denied.

The affiliates rule is similar to the "50 percent rule" for entities sanctioned by the Treasury Department's Office of Foreign Assets Control.

The Commerce Department did not respond to a request for comment.

Though companies around the world are on the Entity List, the change will most significantly impact Chinese entities, experts said. Factories that produce legacy chips and are affiliated with listed companies may be captured, as well as other sectors, including aircraft, they said.

Chinese tech giant Huawei, video surveillance company Hikvision and drone manufacturer DJI are three examples of companies that may be impacted, one expert said. Many Huawei subsidiaries are already on the list, but not all.

An analysis by Kharon, a Los Angeles-based data and analytics company, found the expected rule could pull thousands of hidden subsidiaries in nearly 100 destinations around the world into "export-control crosshairs."

"While Russia and China account for the majority of subsidiaries tied to already-listed entities, Kharon's analysis uncovered that hundreds more are located in major trade and finance hubs - including the EU, the United States, the UK, Singapore, Switzerland, Japan, Canada, Australia and India," the company said in a brief in June in anticipation of the rule.

(Reporting by Karen Freifeld. Additional reporting by the Beijing newsroom. Editing by Doina Chiacu, Chris Sanders, William Maclean)