The proposed sale of German chip-equipment maker Aixtron SE, which has a US subsidiary, to Grand Chip Investment GmbH, the German unit of China’s Fujian Grand Chip Investment Fund, was blocked in December in the US. Photo: Reuters

The Obama administration is finalizing a study that could lead to restrictions on Chinese investment in the U.S. semiconductor sector.

The report, being prepared by President Barack Obama’s chief science adviser and due to be published before he leaves office this month, will include recommendations aimed at bolstering protection of an industry deemed critical to national security, according to people familiar with the study.

Among its recommendations could be a tougher stance by the Committee on Foreign Investment in the U.S., or CFIUS, a secretive multi-agency panel that reviews foreign acquisitions of U.S. assets for national security threats.

The report will give guidance to CFIUS on China’s strategic efforts to dominate the semiconductor market and could lead to new export controls and restrictions on joint-ventures with Chinese firms, according to industry officials.

The Obama administration’s dialing up of its scrutiny of Chinese investment in the U.S. is a rare alignment of policy with the incoming Trump team, which has promised a tough stance with the Asian powerhouse.

“A loss of leadership in semiconductor innovation and manufacturing could have significant adverse impacts on the U.S. economy and even on national security,” John Holdren, the president’s chief science adviser, said in October.

CFIUS, established in 1975 to protect national interests from foreign investment, is chaired by the Treasury Department and has members from the departments of Justice, Defense, State and at least five other executive offices. It has the power to unilaterally block mergers and acquisitions of U.S. assets by foreign investors, and can require terms preventing the transfer of sensitive information and technology deemed important to national security. Often mere notification of a review by the panel discourages deals. Most of its dealings are confidential and meetings secret.

The CFIUS panel has approved some Chinese deals in recent years, including a bid for the Chicago stock exchange. However it has already ratcheted up its oversight of proposed semiconductor acquisitions.

Last month it rejected the proposed sale of Aixtron   SE of Germany—which has a U.S. subsidiary—to Grand Chip Investment GmbH, the German unit of China’s Fujian Grand Chip Investment Fund. The CFIUS panel also forced the withdrawal of two other Chinese acquisition targets in the U.S. over the past 24 months.

The U.S. government views the semiconductor sector as one of the nation’s most critical industries, given that it makes computer chips for everything from smartphones to missiles, satellites to energy grids. U.S. officials are concerned the Chinese could gain backdoor entry into just about anything related to national security, including communications and military weapon systems.

Commerce Secretary Penny Pritzker has cited Beijing’s $160 billion plan to establish itself as a global leader in the semiconductor industry as a threat to the U.S. and reason for the working group’s review.

“We are seeing new attempts by China to acquire companies and technology based on their government’s interests—not commercial objectives,” Ms. Pritzker said. “We will not allow any nation to dominate this industry and impede innovation through unfair trade practices and massive, non-market-based state intervention.”

Officials at China’s Ministry of Commerce and Ministry of Industry and Information Technology didn’t respond to requests for comment.

According to a report by the Rhodium Group consultancy for the U.S.-China Economic and Security Review Commission, a congressional advisory panel, Chinese investment in the sector outside of China jumped threefold in 2014 to $3 billion.

Ms. Pritzker said Mr. Holdren’s impending report, drafted with input from top industry executives and a former senior Central Intelligence Agency official, will provide the next president “with a blueprint for action” to help secure the U.S. semiconductor sector.

Former U.S. trade officials say the semiconductor brief could give the Trump administration added reason to increase oversight of Chinese investment in the U.S., in part to leverage better trade terms with China.

Some industry and government officials are concerned current surveillance is insufficient. CFIUS reviews typically cover acquisitions, not investments where foreign companies build new operations in the U.S. from the ground up.

It is unclear, for example, whether deals such as the one inked earlier this year by  Advanced Micro Devices Inc. to license its technology to China’s Tianjin Haiguang Advanced Technology Investment Co. would trigger a CFIUS review because it didn’t give the company control of the U.S. firm.

A bipartisan collection of U.S. lawmakers is gearing up to expand CFIUS’s legal mandate, in part to demand greater access by U.S. investors into China. Charles Schumer of New York, a top Senate Democrat, has urged the administration to boost scrutiny of Chinese investment deals, citing the failure of Chinese government to grant U.S. investors access in China.

The Government Accountability Office criticized the Department of Defense earlier this year for not adequately addressing the risk of foreign investment in real estate and other sectors near military training and testing ranges. In January, the GAO will explore whether the CFIUS law and administration reviews are strong enough to protect U.S. national security.

The U.S. semiconductor industry is facing an unprecedented wave of consolidations, with mergers and acquisitions in the sector valued last year at over $100 billion. Chinese officials see an opportunity: They launched a coordinated state strategy to boost its share of domestically made chips in its market from around 10% to 70% in the next 10 years, using a $160 billion state fund as its war chest.

Some lawmakers fear that tougher CFIUS reviews could give China reason to block even more U.S. investment into China. That is anathema to many U.S. firms that want to capitalize on the world’s most populated market where a burgeoning middle class is reshaping global demand for goods.

Along with Mr. Trump’s other statements promising an aggressive trade stance, many lawmakers, economists and business officials worry the next president could spark a trade war with China that could do more harm for the U.S. economy than good.

At the same time, CFIUS officials have also worried about suppressing investment and closing markets.

“It is in the national interest of the U.S. to maintain an open investment policy,” said Aimen Mir, Treasury’s deputy assistant secretary for investment security.