U.S. Blacklists SMIC, China’s Top Chip Maker, Plus over 60 Other Entities

Wilbur Ross
The Associated Press/Andrew Harnik

The U.S. Commerce Department announced the addition of over 60 more Chinese entities to the export blacklist Friday, including Semiconductor Manufacturing International Corp. (SMIC), China’s largest producer of computer chips.

“This action stems from China’s military-civil fusion (MCF) doctrine and evidence of activities between SMIC and entities of concern in the Chinese military industrial complex,” the Commerce Department explained.

“We will not allow advanced U.S. technology to help build the military of an increasingly belligerent adversary.  Between SMIC’s relationships of concern with the military industrial complex, China’s aggressive application of military civil fusion mandates and state-directed subsidies, SMIC perfectly illustrates the risks of China’s leverage of U.S. technology to support its military modernization,” Commerce Secretary Wilbur Ross elaborated.

“Entity List restrictions are a necessary measure to ensure that China, through its national champion SMIC, is not able to leverage U.S. technologies to enable indigenous advanced technology levels to support its destabilizing military activities,” Ross said.

The Commerce Department said the other entities added to the sanctions list are involved in abusing human rights, militarizing the South China Sea, and participating in the “theft of U.S. trade secrets.”

The Wall Street Journal (WSJ) noted that the blacklist “effectively prohibits SMIC from acquiring technology to build chips with 10-nanometer circuits and smaller, the industry’s top class of chips,” a huge escalation of sanctions pressure against a company heavily backed by the Chinese state.

More specifically, the restrictions will require a “presumption of denial” for SMIC’s applications to purchase advanced chip technology, so it would still be possible for SMIC to make purchases for some applications. 

An unnamed “senior Commerce official” told the WSJ the U.S. government is especially interested in blocking SMIC for obtaining American technology that could be used in “drones, military aircraft, and exoskeletons” — the latter an application the People’s Liberation Army (PLA) of China is keenly pursuing for troops deployed into extreme environments.

The WSJ noted that suppliers have occasionally bypassed Commerce Dept. blacklists by selling through third parties, as in the case of China’s Huawei finding ways to obtain the American tech it needed after it was placed under export restrictions in 2019, and it is unclear if the new sanctions will survive long in the Biden administration. It seems likely that major U.S. companies interested in selling chips to China will pressure the Biden Commerce Department to loosen restrictions.

CNN reported that SMIC is “already dealing with another major headache,” the strange resignation of Liang Mong Song, one of its two CEOs. SMIC has been working for two days to confirm whether Liang actually resigned, which seems like an odd amount of effort to figure out if a chief executive of one of the largest companies in the world still works there. 

Liang’s possible resignation evidently occurred before the Commerce Department designation was announced, although it is possible he learned the action was imminent. A letter of resignation from Liang has been circulating online since Tuesday, but its authenticity is in question.

Reuters noted that Liang was formerly a “top staffer of Taiwan Semiconductor Manufacturing Co Ltd, SMIC’s chief rival,” and was a prime mover at SMIC for developing more advanced manufacturing technology.

Taiwan Semiconductor (TSMC) made news in May by halting orders from Huawei — its second-largest customer — after a previous action by the Trump administration. The Chinese government vowed to retaliate with a blacklist of its own, threatening restrictions against major U.S. corporations like Apple and Qualcomm. Also in May, TSMC announced it will build a $12 billion factory in Arizona.

The Chinese Foreign Ministry furiously denounced the blacklisting of SMIC on Friday.

“If this report is true, it will be another proof that the United States has been using its state power to crack down on Chinese companies. China firmly opposes such practices,” said Foreign Ministry spokesman Wang Wenbin.

“The U.S. side claims that it champions market economy and fair competition, but its politicization of trade issues goes against its words as well as international trade rules and is detrimental to the interests of both Chinese and American companies, the normal technological exchanges and trade flows between the two countries and even on a global scale, and the stability of global industrial chains, supply chains, and value chains,” he continued.

“We urge the U.S. side to stop its wrong behavior of oppression of foreign companies. China will continue to take necessary measures to safeguard the legitimate rights and interests of Chinese companies,” Wang concluded.

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