Commentary on Political Economy

Friday 18 December 2020


US adds China’s largest chipmaker to export blacklist

SMIC is crucial to Beijing’s plans for chip self-sufficiency © Bloomberg

James Politi in Washington and Hudson Lockett in Hong Kong

The US commerce department has placed Semiconductor Manufacturing International Corporation on its export blacklist, tightening the screws on China’s biggest chipmaker and ramping up technology tensions with Beijing.

The action by the Trump administration will force any American suppliers to SMIC to obtain a US government licence before selling to the company — mirroring the export restrictions in place for other Chinese technologies companies including Huawei and Hikvision.

The move comes as the outgoing Trump administration seeks to lock in some of its more aggressive steps towards Beijing before the incoming Biden administration takes over on January 20. The US commerce department said the move against SMIC was meant to protect national security.

“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 US technology to support its military modernisation,” Wilbur Ross, the US commerce secretary, said in a statement on Friday.

SMIC was one of more than 60 “entities” that were added to the commerce department’s export blacklist, which is run by the Bureau of Industry and Security.

The commerce department said the sweeping action included “entities in China that enable human rights abuses, entities that supported the militarisation and unlawful maritime claims in the South China Sea, entities that acquired US-origin items in support of the People’s Liberation Army’s programs, and entities and persons that engaged in the theft of US trade secrets”.

Shares in SMIC’s Hong Kong-listed stock dropped almost 5 per cent after Reuters first reported that action from the US commerce department was imminent. The breadth of the companies involved weighed on wider investor sentiment in Hong Kong, where the benchmark Hang Seng index lost almost 1 per cent.

Shares in SMIC have fallen more than 8 per cent this week. On Wednesday, the company disclosed that it was “verifying” reports that Liang Mong-song, its co-chief executive, had abruptly quit.

A day earlier, global index provider MSCI said that it would delete SMIC’s shares from its benchmark equity indices, which are followed by trillions of dollars of funds, because of the group’s alleged ties to China’s military.

Donald Trump, US president, signed an executive order last month barring US investors from holding stakes in businesses with such links.

SMIC has previously been subjected to US trade restrictions blocking the export of certain controlled items under rules concerning military end-users.

“Adding the company to the entity list would have a much bigger impact because it would impose a licensing requirement on a far wider range of US-controlled goods, technology and software,” said Nicholas Turner, a Hong Kong-based compliance lawyer at Steptoe & Johnson.

SMIC is a crucial plank in Beijing’s plan for semiconductor self-sufficiency. This year, it raised $7.6bn in an initial public offering on Shanghai’s tech-focused Star market, in what was the onshore Chinese market’s biggest share sale in a decade.

SMIC’s Shanghai-listed shares were little changed on Friday. The company did not immediately respond to a request for comment.

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