The US Department of Commerce told companies on Friday that exports to the Shanghai Manufacturing International Corporation (SMIC) posed an “unacceptable risk” of being diverted to “military end use,” according to a copy of the letter viewed by the Financial Times.
The move threatens to cut China’s largest chipmaker off essential US chipmaking software and equipment. Companies now need licenses to export these products to the minimum wage.
On Saturday, the SMIC said it continues to collaborate with the US Department of Commerce. The company reiterated that it “has no relation to the Chinese military and does not manufacture for end users or military end uses.”
The minimum wage, a ‘national champion’ crucial to the government’s hopes of achieving chip self-sufficiency, became the country’s largest initial public offering in a decade by raising $ 7.6 billion in Shanghai earlier this year .
The minimum wage has already been affected by the tightening of US sanctions against Huawei. This meant that the SMIC could no longer serve its biggest customer. The chipmaker had warned of the risk of worsening US sanctions in its IPO prospectus.
The sanctions will also affect Qualcomm, the American chip designer which uses the minimum wage to manufacture some of its chips. Analysts believe Qualcomm is the second largest minimum wage customer after Huawei.
On Saturday, the SMIC said the company was not yet aware of the new sanctions and was reviewing the situation.
The Beijing Foreign Ministry has previously declared its opposition to US sanctions against Chinese companies. Last weekend, the Chinese Ministry of Commerce announced broad powers to curb the operations of foreign companies deemed “unreliable”.
Lawyers fear that Beijing’s “unreliable entity list” could be used to punish foreign companies that apply sanctions against Chinese companies, putting those companies in a bind between US and Chinese law.
The Commerce Department did not immediately respond to a request for comment.