China’s Largest Chipmaker Sinks After U.S. Imposes Restrictions

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SMIC Targets Sales Increase Of As Much As 20% In 2011

Photographer: Qilai Shen/Bloomberg

Semiconductor Manufacturing International Corp. retreated to a four-month low in Hong Kong after the U.S. imposed export restrictions on China’s largest chipmaker.

The shares slumped as much as 7.9% on Monday, adding to their 25% loss for the month. Also listed in Shanghai, SMIC’s stock there retreated as much as 5.8% to the lowest level since its July debut. U.S. firms must now apply for a license to export certain products to the chipmaker, the Commerce Dept. said in a 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.

Read more: U.S. Imposes Restrictions on Exports to China’s Top Chipmaker

The U.S. stopped short of placing SMIC on the so-called entity list, which means the restrictions are not yet as severe as those imposed on China’s Huawei Technologies Co. Still, the ruling against the chipmaker marks a further escalation in the tensions between the world’s two most powerful countries that have already ensnared other Chinese tech companies including ByteDance Ltd. and Tencent Holdings Ltd.

“The restriction, once implemented, will severely damage SMIC’s existing and future manufacturing capabilities, and customer trust,” Bernstein analysts led by Mark Li wrote in a note. “Without steady supply and service from the U.S., the yield and quality of SMIC’s capacity will degrade, as early as in a few months for more advanced nodes.”

China's top chipmaker is still outpacing TSMC this year

SMIC has not received an official notice of the sanctions, has no relationship with the Chinese armed forces and does not manufacture goods for any military end-users or uses, the Shanghai-based company said in an emailed statement over the weekend. The Chinese Foreign Ministry in Beijing didn’t immediate respond Monday to a request for