United States weighs export controls on China’s top chipmaker

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The Trump administration is considering whether to impose export restrictions on China’s most advanced semiconductor maker, a move that could go to the heart of China’s ambitions to become self-reliant on critical technologies.

The approach is the same as that which the American authorities imposed on the Chinese telecommunications supplier Huawei. The decision to add Huawei Technologies Co. to the entity list, along with subsequent steps to fill in the gaps and further deprive the company of components, has threatened its business and worsened U.S. relations with China.

The technological battle between the United States and China has hit TikTok and Huawei and surprised American companies that produce and sell in China. WSJ explains how Beijing is investing money in high-tech chips as it wants to become self-sufficient. Video / Illustration: George Downs / The Wall Street Journal

Any decision to impose minimum wage export controls would mark a major escalation in the administration’s crackdown on Chinese tech companies. It could also frustrate US companies that collectively sell billions of dollars in chip-making technology to Chinese manufacturers.

Among the questions being considered is whether the minimum wage is helping the Chinese defense establishment, people briefed on the talks said. A research report produced last month by US defense contractor SOS International LLC claims this is the case.

The report says the company has worked with one of China’s largest defense conglomerates, and researchers at universities linked to the Chinese military have designed their work to accommodate SMIC technology. They include a Chinese military academy that the Commerce Department blacklisted for export in 2015 for its alleged work designing chips used in supercomputers that simulate nuclear tests.

“A series of university PLA and Defense Industrial Complex researchers are using SMIC processes and chips to conduct their research, indicating that this research fits the SMIC production specifications, preventing them from manufacturing their chips in another foundry, ”according to the report, which cites references to the use of SMIC chip technologies in published work by researchers at what it describes as universities affiliated with the military. The PLA refers to the Chinese armed forces, the People’s Liberation Army.

The SOS International report was shared with officials from several agencies of the Trump administration, including the Commerce Department’s Office of Industry and Security, people briefed on the discussions said. The agency is responsible for overseeing restrictions on exports of sensitive US technology.

A spokesperson for the SMIC denied the report’s conclusions, saying in an e-mail that the SMIC “had fully committed not to use military since the creation of the company”.

On Saturday, the company released a longer statement on its WeChat social media account, saying it manufactures semiconductors “only for civilian and commercial end users and end uses.” He said the Commerce Department has granted the company numerous export licenses over the years.

“The company is completely shocked and perplexed by the news,” the statement read. “Nonetheless, the SMIC is open to sincere and transparent communication with US government agencies in the hope of resolving any misunderstandings.”

The comments follow a Reuters report that the Defense Ministry is working with other agencies to determine whether the minimum wage should be added to the list of entities.

The Commerce Department may require suppliers to obtain licenses before exporting certain technologies of American origin to companies like the SMIC by adding them to the list of entities or by considering them to advance the military objectives of the United States. China.

A Commerce Department spokesperson declined to comment.

Founded in 2000 by a veteran of American and Taiwanese chip companies, SMIC grew to become the largest contract manufacturer of chips in China and was at one time a major producer for North American chip companies. It has since become a national champion, with China investing billions of dollars in developing its domestic chip industry. The SMIC has several state-owned entities as major shareholders, and Chinese companies accounted for nearly 60% of its $ 3.1 billion in revenue last year.

Like virtually all chipmakers, SMIC relies on American-made technology to build and test its chips. US companies account for 45% of the global market for chipmaking equipment, according to industry group SEMI. For some highly specialized processes, U.S. companies are virtually indispensable, according to industry analysts.

“The United States still has a grip on the technology it needs,” said Paul Triolo, head of global technology policy practice at political risk consultancy Eurasia Group.

Mr Triolo, who had reviewed the SOS report, called the military ties he alleged weak. “I’m not sure that’s a justification for turning them into a military enterprise,” he said. The report does not say how much of the SMIC’s revenue comes from military uses of its technology and does not allege that the SMIC sells chips directly to the Chinese military.

James Mulvenon, director of intelligence integration at SOS International, confirmed the company’s authorship and said the report was funded internally.

“They are deeply rooted in military industrial defense research projects and are widely regarded as the national champion of integrated circuit manufacturing throughout the national security space,” Mulvenon said.

The SMIC has been traded on the New York Stock Exchange for more than a decade, but retired last year citing costs and low trading volumes. In July, amid mounting tensions between China and the United States, it raised an additional $ 7.7 billion in the highly technological Chinese market for STAR. It received billions of dollars in new government funding in May to work on advanced chip manufacturing.

China’s drive for self-sufficiency has taken on heightened urgency following the Commerce Department’s restrictions on technology exports to Huawei, the world’s largest telecommunications equipment maker and China’s leading chip designer. Huawei was one of the biggest customers of the minimum wage, accounting for around 20% of its turnover last year, according to research firm Gartner.

The Trump administration has taken an increasingly broad approach to its use of the entity list. Although the lists have traditionally been used against companies that break export control rules, administration officials have increasingly justified the lists on broader national security grounds. Chinese companies have become frequent targets.

Earlier this year, the Trump administration gave Commerce Department officials more power to stop exports of sensitive U.S. technology that helps the Chinese military, as part of its efforts to hamper China’s strategy. ‘lean on private companies to advance its military ambitions, an effort known as “military.” -civil fusion. “

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