Shares in China’s biggest chipmaker fall after reports that it could lose access to US technology

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Shares in SMIC, China’s biggest chipmaker, fell on Monday on fears that it could lose access to key US technology.



a group of people standing in front of a building: People visit the stand of Semiconductor Manufacturing International Corporation (SMIC) during an exhibition in Shanghai, China, 14 March 2018. (Imaginechina via AP Images)


© Imaginechina via AP Images
People visit the stand of Semiconductor Manufacturing International Corporation (SMIC) during an exhibition in Shanghai, China, 14 March 2018. (Imaginechina via AP Images)

The Financial Times reported this weekend that the US Commerce Department has sent a letter to companies warning of an “unacceptable risk” that exports to Semiconductor¬†Manufacturing International Corporation could be used for military purposes.

It’s not entirely clear whether that letter means that official restrictions on SMIC have gone into effect. The FT reported that the firm had been “hit by US sanctions.” Reuters similarly reported that the US is tightening controls on exports to SMIC, citing the letter.

But the US Commerce Department has not yet added the Chinese firm to its Entity List, which would require US companies to apply for licenses to export to SMIC, according to analysts at brokerage firm Jefferies.

The Commerce Department did not respond to a request for comment outside of regular business hours.

SMIC said Monday that it was “not aware of the notification” referred to in the news reports. It added in a statement to CNN Business that its semiconductors are for civilian and commercial use, and that it has no relationship with the Chinese military.

But the reports were enough to worry investors. Shares of SMIC fell nearly 4% in Hong Kong on Monday. The company’s Shanghai-listed shares dropped 7%.

An escalating fight over tech

SMIC’s fate is still murky. Jefferies analyst Edison Lee pointed out in a Sunday research note that the Commerce Department in April broadened its definition of “military end-users” to include private companies that provide products to the military. That designation has always required an export license.

Lee suspected that if SMIC isn’t specifically added to the US government’s Entity List, it could be that the US officials are “merely reminding” those that do business with SMIC of the rule change.

“It does not mean a blanket ban on SMIC,” he wrote.

Any kind of US export ban on SMIC would mark yet another escalation of tensions between the world’s two largest economies, which are locked in a battle over the technologies of the future.

SMIC is part of China’s push to build a cutting edge semiconductor industry, but that takes a lot of time and a lot of money. Most chipmaking companies around the world rely on US technology to manufacture and design more advanced semiconductors.

The threat of sanctions on SMIC has been a worry for some time. The company’s stock plunged earlier this month on reports that the US Department of Defense and other US agencies were considering banning exports to SMIC.

Sanctions would significantly hurt the chipmaker’s operations because “an overwhelming majority” of its equipment is sourced from the United States, according to analysts at brokerage firm Morningstar.

“Although Chinese substitutes have emerged in parts of the supply chain, their specifications are typically two to three generations behind,” Morningstar analyst Phelix Lee wrote in a report earlier this month.

A Beijing official said Monday that China “firmly opposes” potential restrictions on SMIC, and criticized the United States for “abusing export controls.”

“China will continue to take necessary measures to safeguard the legitimate rights and interests of Chinese enterprises,” Wang Wenbin, spokesman for China’s Ministry of Foreign Affairs, told reporters.

Chinese state media is already bracing for a potential export ban. The country needs to prepare for a “new long tech march” after the US attack on SMIC, state-run tabloid The Global Times wrote in an editorial Sunday. The term was a reference to the Red Army’s strategic military retreat in the 1930s, which marked the rise of Chairman Mao Zedong.

Other Chinese firms under pressure

SMIC is far from the only company at risk of US-China tensions.

In recent weeks, TikTok and its Chinese parent company ByteDance have been involved in an ongoing saga over the fate of the video app’s US business.

US President Donald Trump last month threatened to ban TikTok unless it is sold to an American company, leading ByteDance to work with the US firms Oracle and Walmart on a proposal that would allow TikTok to keep operating in the country. The deal still hasn’t been finalized.

A US judge, meanwhile, temporarily blocked the Trump administration’s ban on the app, which was set to take effect Sunday. The judge indicated that the order, as structured, could be considered a “fairly significant deprivation” of the company’s due process rights.

Chinese tech champion Huawei is also fighting for survival. The company’s rotating chief executive said last week that the company has been “under significant pressure” because of “nonstop aggression from the US government.”

“From Huawei to SMIC, the Chinese people should see for themselves that we are facing a protracted battle against high-tech suppression being led by the US,” The Global Times editorial board wrote Sunday.

In May, Washington restricted the ability of Huawei’s chip design company to work with Taiwanese firm TSMC, the world’s biggest contract manufacturer of semiconductors. Last month, it further cut off Huawei’s access to other chipmaking companies. Most major semiconductor manufacturing companies, including TSMC and SMIC, rely on US machines and technology.

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