US Sanctions to Curb Operations of China's Largest Chipmaker SMIC

Daniel Fowler
September 28, 2020

SMIC replied, "Any assumptions of the company's ties with the Chinese military are untrue statements and false accusations". Unlike SMIC, Huawei was added to the entity list in 2019.

The restrictions against SMIC, and earlier ones against Huawei Technologies Co Ltd, the op-ed author argues, illustrate that the U.S is leading a protracted battle of "high-tech suppression" against China. "The Entity List rules apply to all U.S. origin and some foreign-origin items", said Kevin Wolf, an export control lawyer at Akin Gump and senior Commerce Department official in the Obama administration, as cited by Bloomberg.

Equipment sold to the Chinese company posed an "unacceptable risk" of being diverted to "military end use" according to a letter sent to major U.S. computer chip firms that was seen by The Wall Street Journal and the Financial Times.

And popular video app TikTok, owned by Chinese company ByteDance, is now facing a potential ban in the USA because of worries that the user data it collects could be shared with China's communist government. According to the Financial Times, U.S. companies will now need to obtain a license before they are allowed to ship certain materials to the largest foundry in China. "I would not expect the government to provide licenses for such exports absent special favorable circumstances", said Clark.

The move by the US against SMIC could deal a blow to Beijing's ambition to build a competitive chip industry and cut reliance on foreign suppliers. Even for those less advanced chips, SMIC still heavily relies on American technology and equipment.

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"The restriction, once implemented, will severely damage SMIC's existing and future manufacturing capabilities, and customer trust", Bernstein analysts led by Mark Li wrote in a note.

SMIC is the largest Chinese chip manufacturer and made its trading debut on Shanghai's Nasdaq-style STAR Market in July, marking China's biggest IPO in a decade. "Without steady supply and service from the USA, the yield and quality of SMIC's capacity will degrade, as early as in a few months for more advanced nodes". The U.S. has reportedly said it was mulling a more severe blacklisting on SMIC - akin to the ones imposed on Huawei - that would affect exports from a broader set of companies.

The Commerce Department would not comment on the matter specifically, but a spokesperson with its Bureau of Industry and Security said they are "constantly monitoring and assessing any potential threats to U.S. national security and foreign policy interests" and "will take appropriate action as warranted".

SMIC said on Sunday it has not yet received any official notice from the US government about the latest restriction while the company reiterated it has no relationship with the Chinese military and does not manufacture for any military end-users or end-uses.

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