This would work in a fully capitalist economy where supplying them with chips would remove funding/investment from the local alternatives. This is not China. China has been and will continue to pour billions upon billions of dollars into their native industry because they too believe that having their own chips is important, so they will take all the cutting edge chips they can get and they will continue to develop their own at the exact same rate.

They do not need a ban to light a fire under them. The fire is already lit and burning and nothing the west can do will even slightly dampen it.

You yourself claim they are within a couple of years. If that's the case you think they will stop developing if we sell them chips? That's laughable.