US Vets Export has export control over China’s top chipmaker

The Trump administration is weighing whether to impose an export ban on China’s most advanced manufacturer of semiconductors, a move that could cut into the heart of China’s ambitions to become self-sufficient on key technologies.

The move is the same as the US authorities imposed on Chinese telecom equipment manufacturer Huawei. Huawei Technologies’ decision to add the company to the entity list, with subsequent steps to plug the loopholes and push the components company forward, has threatened its business and worsened US relations with China .

The technological battle between the US and China has hit Tiktok and Huawei and shocked US companies producing and selling in China. The WSJ explains how Beijing is pouring money into high-tech chips because it wants to become self-sufficient. Video / Illustration: George Downs / The Wall Street Journal

Any decision to impose export controls on SMIC would mark a huge increase in administration action on Chinese tech companies. This may disappoint US companies that collectively sell billions of dollars of chip-making technology to Chinese manufacturers.

Among the issues being considered is whether SMIC is helpful in China’s defense establishment, people gave information on the discussions. A research report produced last month by US defense contractor SOS International LLC argues that it does.

The report states that the company has worked with one of China’s largest defense groups and universities linked to China’s military have designed their work to fit SMIC technology. These include a Chinese military academy that was put on an export blacklist by the Commerce Department in 2015 for alleged designing chips used in supercomputers that simulate nuclear tests.

“PLA University and a series of defense industrial complex researchers used SMIC processes and chips to conduct their research, indicating that this research conformed to SMIC production specifications, allowing them to use their chips in another foundry Construction is impossible, ”according to the report, which references the use of SMIC chip technologies in work described by researchers as published military-affiliated universities. The PLA referred to the People’s Liberation Army, China’s armed forces.

SOS International’s report has been shared with officials from several agencies in the Trump administration, with people in the discussion with the Bureau of Industry and Security of the Department of Commerce. The agency is responsible for overseeing restrictions on the export of sensitive US technology.

A spokesperson for SMIC denied the report’s findings, saying in an email that SMIC had “made no full military use commitment since the company’s founding.”

On Saturday, the company posted a lengthy statement to its WeChat social-media account, stating that it manufactures semiconductors “for civil and commercial end-users and end-uses only”. It said that the Department of Commerce has granted several export licenses to the company over the years.

“The company is in complete shock and news,” the statement said. “Nevertheless, SMIC is open to honest and transparent communication with US government agencies in hopes of resolving potential misconceptions.”

Comments following the Reuters report stated that the Department of Defense is working closely with other agencies to determine whether SMIC should be added to the entity list.

The Commerce Department may require suppliers to license certain companies like SMIC to add them to the entity list or condemn them for advancing China’s military objectives before exporting some US-origin technology.

A spokesman for the Department of Commerce declined to comment.

Founded in 2000 by a stalwart of US and Taiwanese chip companies, SMIC became China’s largest contract manufacturer of chips and was at one time a major manufacturer for North American chip companies. It has since become a national champion, as China spends billions of dollars developing its domestic chip industry. SMIC counts several state-owned entities as major shareholders, and Chinese companies contributed nearly 60% of their $ 3.1 billion revenue last year.

Like virtually all chip makers, SMIC relies on American manufacturing technology to manufacture and test its chips. According to industry group SEMI, US companies have a 45% share in the global market for chip manufacturing equipment. According to industry analysts, American companies are all indispensable for certain processes.

“The US still has the technology they need,” said Paul Trollo, head of global technology policy practice at the political risk consulting firm Eurasia Group.

Mr Trollo, who reviewed the SOS report, described the military link as allegedly difficult. “I’m not sure this is the justification to wire them as a military company,” he said. The report does not say what portion of SMIC’s revenue comes from military use of its technology and does not allege that SMIC sells chips directly to the Chinese military.

James Mullivan, director of Intelligence Integration at SOS International, confirmed the authorship of the company and said the report was internally funded.

“He is deeply embedded in defense-industrial military research projects and is widely regarded as the national champion for integrated circuit construction throughout the national security sector,” said Mr. Mulewane.

SMIC was traded on the New York Stock Exchange for over a decade, but was listed last year citing its cost and low trading volume. In July, amid growing tensions between China and the US, it invested an additional $ 7.7 billion on China’s technology-heavy Star market. It received billions of dollars of new state funding in May to work on advanced chip manufacturing.

China’s self-sufficiency has accelerated even further after the Commerce Department imposed restrictions on technology exports for Huawei, the world’s largest manufacturer of telecommunications equipment and leading Chinese designer of chips. According to research firm Gartner, Huawei was one of SMIC’s largest customers, accounting for about 20% of its revenue last year.

The Trump administration has taken a more comprehensive approach to the use of entity lists. Although listings have traditionally been used against companies violating export-control regulations, administration officials have extended fair listings on broader national-security grounds. Chinese companies have continued to be targeted.

Earlier this year, the Trump administration gave the Commerce Department officials more power to stop the export of sensitive US technologies, which assists the Chinese military, over private companies to pursue their military ambitions. Is part of its effort to promote the strategy of, known as “the military.” -Sindhi fusion

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