USA government sanctions Chinese chipmaker SMIC, FT reports

Ruben Fields
September 27, 2020

The U.S. imposed export restrictions on Semiconductor Manufacturing International Corp., taking aim at another prominent Chinese technology company and adding to tensions between the two countries over the critical industry.

The relocation threatens to cut off China's biggest chipmaker from vital U.S. software application and chipmaking devices. "This would be a tipping point for US-China relations", said Paul Triolo, head of tech policy analysis at consultancy Eurasia Group. SMIC said it's unaware of the sanctions and is looking into the situation, the FT said.

SMIC, a "national champion" that is vital to the federal government's hopes of attaining chip self-sufficiency, ended up being the nation's biggest going public for a years when it raised $7.6 bn in Shanghai previously this year. SMIC's customers include USA chipmakers Qualcomm Inc. and Broadcom Inc., according to Bloomberg data. This meant that SMIC could no longer serve its largest customer, which generates a fifth of its revenues. Telecoms giant Huawei Technologies had its access to high-end chips curtailed by its addition to a Commerce Department blacklist known as the entity list. The company offers chips and services "only to civilian, commercial and end-use end users", according to the representative.

SMIC added it had not received any formal notification of the sanctions.

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The end goal of USA's strategy is unclear, as diversification of Chinese industry away from United States sources will ultimately hurt U.S. companies, damage the United States trade balance with China, and reduce US's influence on China, with no clear gain in sight. Last weekend, China's Ministry of Commerce revealed broad powers to suppress the operations of foreign business considered "unreliable".

Lawyers are concerned that Beijing's "unreliable entities list" could be used to punish foreign companies that enforce U.S. sanctions against Chinese companies, putting such companies in a bind between USA and Chinese law.

In April, the administration announced a tightening of export rules aimed at preventing USA companies from selling products that could strengthen China's military. Even for those less advanced chips, SMIC still heavily relies on American technology and equipment. Firms will need licenses in order to export technology products to SMIC, the paper said. It also said that it is continuing to engage with the US Department of Commerce. The fear from the USA side is that there is an "unacceptable risk" that the chips produced by SMIC could end up being used on military goods.

The Commerce Department's Bureau of Industry and Security, which controls the export of commodities and related technology that could compromise USA national security, declined to comment on the SMIC restrictions in a statement to Reuters.

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