US sets export controls on China's leading chip maker SMIC

The US Commerce Department has asked American companies to obtain licenses before exporting certain technology to China’s largest manufacturer of semiconductors, the Semiconductor Manufacturing International Corp (SMIC).

This decision comes as a big blow to China's efforts to compete in advanced technology.

According to a report by The Wall Street Journal, The Commerce Department laid out the requirement in a letter to the computer-chip industry on September 25.  The letter, a copy of which was reviewed by The Wall Street Journal, says exports to SMIC or its subsidiaries risk being used for Chinese military activities. 

The U.S. action threatens to cut off SMIC from equipment used to manufacture chips. This is besides the fact that SMIC is backed by several state-owned entities and is at the heart of Beijing’s push to become self-reliant on advanced technologies like chips, the report said.

“We continue to engage constructively and openly with the U.S. Department of Commerce,” a SMIC spokeswoman said September 26.

“SMIC reiterates that it manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses. The Company has no relationship with the Chinese military and does not manufacture for any military end-users or end-uses," she said.

According to the report, the Commerce Department didn’t respond to a request for comment very early on September 26.

Among the issues under discussion was whether SMIC provides assistance to China’s defense establishment, according to people familiar with the matter. The Trump administration has grown more concerned about Beijing’s practice of leaning on private companies to advance its military aims, an effort known as military-civil fusion.

The Trump administration has also vastly expanded restrictions on dozens of companies. This ranges from telecom giant Huawei Technologies Co. to lesser-known companies that are believed by the U.S. to be involved in human rights violations that have been added to the entity list in recent years.

In April, the administration announced a tightening of export rules aimed at preventing U.S. companies from selling products that could strengthen China’s military.

The Commerce Department in its letter said exports to SMIC “may pose an unacceptable risk of diversion to military end-use in the People’s Republic of China.” It said that suppliers “must submit an application for an individually-validated license prior to exporting, reexporting or transferring in-country” on certain sensitive technologies.

Makers of semiconductor-manufacturing equipment have been concerned about the potential extension of the military end-user designation to SMIC since the Commerce Department announced tighter licensing requirements under this rule in April.