US tightens exports to SMIC, China's biggest chip maker

Firm disputes US claim equipment supplied to it could be used for military purposes

WASHINGTON/SHANGHAI • The US has imposed restrictions on exports to China's biggest chip maker SMIC after concluding that there is an "unacceptable risk" that equipment supplied to it could be used for military purposes.

Suppliers of certain equipment to SMIC, or Semiconductor Manufacturing International Corporation, will now have to apply for individual export licences, according to a letter from the Commerce Department dated last Friday and seen by Reuters.

The latest move marks a shift in United States policy from earlier this year, when applicants seeking "military end user" licences to sell to SMIC were told by the Commerce Department the licences were not necessary, said three people familiar with the matter.

SMIC said it had not received any official notice of the restrictions and said it has no ties with the Chinese military.

"SMIC reiterates that it manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses," SMIC said.

"The company has no relationship with the Chinese military and does not manufacture for any military end-users or end-uses."

SMIC is the latest leading Chinese technology firm to face US trade restrictions related to national security issues or Washington's foreign policy efforts.

Telecoms giant Huawei Technologies had its access to high-end chips curtailed by its addition to a Commerce Department blacklist known as the entity list.

"There's been a lot of coverage on the Trump administration's actions regarding TikTok, but the more significant actions - from a global economic standpoint and that will have considerable ripple effects through global supply chains - are the increasing restrictions on SMIC and other Chinese national champions like Huawei," said Mr Nicholas Klein, a Washington lawyer who specialises in international trade. He said these actions are more likely to draw a retaliatory response from Beijing.

The US has moved to ban the popular short video app TikTok, citing national security concerns stemming from its Chinese ownership.

SMIC's new designation is not as severe as being blacklisted, which makes it difficult to get any export licence approved.

The Pentagon earlier this month said it was working with other agencies to determine whether to blacklist SMIC for its purported links to the Chinese military.

American businesses including Lam Research, KLA Corp and Applied Materials, which supply chipmaking equipment, may now need to get licences to ship certain goods to SMIC.

It is unclear which suppliers received the letter, but typically once the Commerce Department comes to the conclusion that there is a risk of military use or diversion, it sends that information to the companies.

The Commerce Department's Bureau of Industry and Security declined last Saturday to comment specifically on SMIC, but said it was "constantly monitoring and assessing any potential threats to US national security and foreign policy interests".

The administration has increasingly trained its focus on Chinese companies that bolster Beijing's military. Last month, the US blacklisted 24 Chinese companies and targeted people it said were part of construction and military actions in the South China Sea, its first such sanctions against Beijing over the disputed strategic waterway.

REUTERS

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A version of this article appeared in the print edition of The Straits Times on September 28, 2020, with the headline US tightens exports to SMIC, China's biggest chip maker. Subscribe