US imposes restrictions on exports to China’s top chipmaker

US imposes restrictions on exports to China’s top chipmaker
SMIC and its subsidiaries present “an unacceptable risk of diversion to a military end use,” the department’s Bureau of Industry and Security wrote.

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SMIC has not been placed on the so-called U.S. entity list, which suggests the restrictions aren’t yet as severe as those imposed on China’s Huawei Technologies Co (AP File)
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 2 countries over the critical industry.

U.S. firms must now apply for a license to export certain products to China’s largest chipmaker, the Commerce Dept. said in letter dated Sept. 25, reviewed by Bloomberg News. SMIC and its subsidiaries present “an unacceptable risk of diversion to a military end use,” the department’s Bureau of Industry and Security wrote.

SMIC has not been placed on the so-called U.S. entity list, which suggests the restrictions aren’t yet as severe as those imposed on China’s Huawei Technologies Co. The U.S. has reportedly said it had been mulling the more severe blacklisting, which might affect exports from a broader set of companies.

“The military end-use rules only apply to a subset of listed U.S. origin items. The Entity List rules apply to all or any U.S. origin and a few foreign-origin items,” said Kevin Wolf, an exportcontrol lawyer at Akin Gump and senior Department of Commerce official within the Obama administration.

Compromise
The SMIC decision was a compromise between the Department of Defense and Commerce and moderates within the Trump administration, consistent with one person conversant in the negotiations.

SMIC has not received a politician notice of the sanctions, has no relationship with the Chinese soldiers and doesn’t manufacture goods for any military end-users or uses, the Shanghai-based company said in an emailed statement.

The Department of Commerce wouldn’t immediately confirm the contents of the letter. The Financial Times reported on the letter earlier.

Still, restrictions against SMIC mark further escalation within the rising tensions between the world’s two most powerful countries. The U.S. and China have clashed over trade, property , the coronavirus pandemic and national security, including an onerous new security law in Hong Kong .

The field of technology has become increasingly contentious as China takes aim at leading the planet in certain sectors long dominated by the U.S. The Trump administration blacklisted Huawei, preventing the enormous telecommunications provider from buying components from American suppliers and pressured allies to imitate . Then President Donald Trump threatened to ban the video app TikTok from China’s ByteDance Ltd. if the service wasn’t sold to American owners.

As much as 50% of SMIC’s equipment comes from the U.S., Jefferies estimated, and therefore the company features a market price of quite $29 billion. SMIC’s customers include U.S. chipmakers Qualcomm Inc. and Broadcom Inc., consistent with Bloomberg data. The Chinese company’s shares slumped 23% in at some point earlier this month following a report that the U.S. was mulling adding the firm to the blacklist.

“Should the U.S. export ban on SMIC materialize, it’ll signal an escalated attack by the U.S. on China’s semi industry and more Chinese companies will likely be included,” Jefferies analysts led by Edison Lee said.

After reports of the blacklist threat against SMIC earlier this month, Chinese Foreign Ministry spokesman Zhao Lijian accused the U.S. of “blatant bullying.”

“What it’s done has violated international trade rules, undermined global industrial supply and value chains and can inevitably hurt U.S. national interests and its own image,” Zhao told a news briefing in Beijing.

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