Chinese chip giants SMIC ‘in shock’ after US trade ban threat

By Singh Kelian
Technology desk editor

Image copyrightGetty Images / SMIC

This could be his next trade embargo target after China’s disclosure of China’s largest chipmaker’s stock.

The Semiconductor Manufacturing International Corporation (SMIC) said it was revealed to the Pentagon that it had proposed to add the firm to the government blacklist.

It would prohibit suppliers from providing US-based technology without special permission.

Beijing said it was “strongly opposed”.

A State Department spokesman accused Washington of “bullying bullying” and using national security concerns to break international trade rules.

The move could make SMIC the next center of a trade conflict that has already endangered the existence of Chinese tech firm Huawei and forced Bikedens to sell its US operations of video-sharing app TikTok.

SMIC has a less advanced production line than some of its rivals – it cannot make transistors as small as it can limit the ability to produce some of the state-of-the-art chips featured in the latest smartphones.

Nevertheless, the company is an important semiconductor provider for Chinese companies, including Huawei, while also serving international customers including Qualcomm.

Analysts have said the trade ban could threaten SMIC’s survival, and in turn thwarted Beijing’s efforts to roll back the country’s semiconductor industry as part of its Made in China 2025 strategy.

Image copyrightEPA
image CaptionSMIC uses computer chips by Chinese and American companies, among others.

Richard Windsor, founder of research firm Radio Free Mobile, told the BBC, “SMIC is unable to update the software of any of its American machines or will help suppliers get personnel to work.”

“It will be unable to purchase any more equipment or any upgrades to new technologies. If it persists for a long time, it would represent an existential threat that could cause the company to close its doors.”

This in turn could compromise China’s broad technology and ambitions of artificial intelligence.

Military link

Pentagon spokesman Su Gog said on Saturday that adding the Shanghai-based firm to the Commerce Department’s entity list would “ensure that all exports to SMIC undergo a more comprehensive review”.

He did not say what prompted its intervention, but Reuters said defense chiefs were concerned that the company had ties to the Chinese military.

SMIC denies such ties. “The company makes semiconductors and only provides services for civil and commercial end-users and end-uses,”

It told Bloomberg news agency over the weekend.

“We have no connection with the Chinese military. Any assumption of the company’s relationship with the Chinese military is untrue statements and false allegations.”

Still, it was not enough to avoid selling out on Monday.

Hong Kong-based shares of SMIC declined 23%, while those traded through a secondary listing in Shanghai fell 11%. Overall, the market value of more than $ 6bn was erased, according to the Financial Times.

Company-viewers have also raised doubts over their claims of independence.

Mr. Windsor has mentioned that Datang Telecom Group is one of the largest shareholders of SMIC, as well as being a board member and customer. It supplies equipment to the People’s Liberation Army.

“[This] Provides quite a strong link to the Army, which contradicts SMIC’s own statements, ”he wrote in a research note.
Elsewhere, the Financial Times stated that an unnamed American defense contractor had produced a report claiming that SMIC had manufactured the devices for researchers at universities affiliated with the People’s Liberation Army.

The BBC has sought answers from SMIC on both points.

Tech freedom

The trade blacklist would be detrimental to the prospects of SMIC.

Image copyrightGetty Images
image CaptionBan on SMIC may set back President Xi’s Made in China 2025 initiative

But it could also give Beijing’s goal to become less dependent on Western technology.

According to the Center for Strategic and International Studies (CSIS) think tank, by 2019, only 16% of computer chips used in China were produced domestically.
Beijing wants the figure to reach 70% by 2025. Leaders of the Chinese Communist Party planned to reveal support for the region in October.

CSIS has said that while export controls could slow China down, Washington should also consider providing financial support to its domestic semiconductor industry.

“The US is spending science, research and technology on the 1980s,” said researcher James Andrew Lewis. “

“To defend itself, federal investment in technology is needed again.”

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