America cities military concerns in restricting China’s leading chip maker

Washington: The Trump administration has placed new restrictions on exports to Semiconductor Manufacturing International Corp, China's most advanced maker of computer chips, a measure that could deepen the technology conflict between China and the United States.

In a letter on Friday, the Department of Commerce told US companies in the chip industry that they must first acquire a license to sell technology to SMIC and its subsidiaries. The department said it was taking the action after a review in which it determined that the Chinese company "may pose an unacceptable risk of diversion to a military end use in the People's Republic of China".

Employees put on clean suits at Semiconductor Manufacturing International Corp. (SMIC), in Shanghai, China, which has been targeted by US authorities.Credit:Bloomberg

The measure, which could cut SMIC off from US software and other technology it needs to make its products, comes as the Trump administration takes a harsher stance against Chinese technology companies that it has deemed a national security threat. The administration has clamped down on shipments to the Chinese tech giant Huawei, restricted exports to dozens of other Chinese companies by placing them on a blacklist this year and moved to ban the Chinese-owned social media services WeChat and TikTok.

A spokesperson for the Bureau of Industry and Security, a division of the Commerce Department, said that the bureau could not comment on specific licensing issues, but that it was "constantly monitoring and assessing any potential threats to US national security and foreign policy interests" and would "take appropriate action as warranted".

The letter was first reported by The Financial Times.

The Pentagon, in particular, has expressed concerns that SMIC, whose major shareholders include several Chinese state entities, has ties with the Chinese military.

A research report by the US defence contractor SOS International that has been widely circulated within the Trump administration says that researchers at universities associated with the Chinese military appear to have made extensive use of SMIC's processes and technologies in their research and that other SMIC customers probably have ties to the Chinese defence industry.

A SMIC spokeswoman said on Saturday that the company had no relationship with the Chinese armed forces and that it produced chips solely for commercial and civilian use. She added that the company had not received any official notice from the Commerce Department regarding new export restrictions.

Factories in China churn out a huge share of the world's cellphones, computers and internet equipment. But the silicon brains of that gear are often shipped in from overseas.

Last year, mainland China imported more than $US300 billion in computer chips, more than it spent on crude oil. The country's leader, Xi Jinping, has put enormous resources toward making China more self-reliant in semiconductors and other advanced technologies.

But state support has only taken Chinese chip companies so far. Although SMIC is China's most technologically advanced chip maker, its manufacturing processes are years behind those of industry leaders like Samsung and Taiwan Semiconductor Manufacturing Co. in terms of the number of transistors they can squeeze onto a piece of silicon. That means SMIC cannot make the intricate chips that best support the latest, most demanding applications.

Even to produce its less sophisticated semiconductors, SMIC relies on software and machines from US companies. Analysts at the investment bank Jefferies estimate that up to half of SMIC's equipment currently comes from US suppliers. SMIC could struggle to stay in business if those partners cannot service and upgrade the company's manufacturing equipment.

SMIC's business has already been hit this year by the Trump administration's curbs on Huawei. In recent months, the Commerce Department has curtailed the Chinese tech giant's ability to buy semiconductors anywhere in the world, including from SMIC. Huawei's chip unit accounted for nearly one-fifth of SMIC's sales last year, according to estimates by Credit Suisse analysts. Qualcomm, the US chip giant, is another customer of SMIC's.

The New York Times

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