The Trump administration has put Semiconductor Manufacturing International Corporation and DJI, the drone maker, on a US export blacklist, raising tensions with China as Joe Biden prepares to take office.
The commerce department placed 60 Chinese companies, including DJI and SMIC, on its “entity list”. A commerce department official said SMIC was added to the list — which requires US companies to obtain licences to sell equipment and technology to the company — because of concern that it chips were used in products for the Chinese military.
The official said DJI, the world’s biggest drone maker which has a dominant market share in the US, had been added because its products were used to enable human rights abuses in China and elsewhere.
Beijing Institute of Technology, China Communications Construction Company and more than a dozen research institutes connected to the China State Shipbuilding Corporation were also added to the list. The actions mirror earlier restrictions on Chinese technology companies, such as Huawei and Hikvision, the surveillance camera manufacturer.
The move marks the latest effort to increase pressure on China over concerns about national security and its human rights abuses in the northwestern Xinjiang region, as well as military activity in the South China Sea.
“China’s corrupt and bullying behaviour . . . harms US national security interests, undermines the sovereignty of our allies and partners, and violates the human rights and dignity of ethnic and religious minority groups,” said Wilbur Ross, the US commerce secretary.
Mr Ross added that the move was partly driven by US concern about China’s “military-civil fusion” programme, which compels Chinese companies to provide the military with various technologies.
The Financial Times reported on Thursday that the state department and Pentagon are fighting an effort by Treasury to water down an executive order from Donald Trump that bars US investors from investing in Chinese companies with ties to the Chinese military. The order was also partly designed to combat the “military-civil fusion” programme.
Referring to SMIC, the commerce department signalled that it would deny licences for American companies to supply the Chinese group with technology that was “uniquely” required to manufacture semiconductors at or below 10 nanometres — a highly advanced category of chips.
Michael McCaul, the top Republican on the House foreign affairs committee, welcomed the move to put the Chinese companies on the entity list, but said he was concerned “the new rules may be more bark than bite”. He added he was worried that the move might “create an exception for malign actors to evade US export controls”.
One US semiconductor industry executive also warned that the move was less substantive than appeared. He said most chip manufacturing tools did not fall into the narrow and “unique” 10nm category since many were able to produce chips between 10nm and 14nm.
He said the action would spark retaliation from China, hurting US chip manufacturers, while not doing very much to address the security concerns raised by Washington.
The executive said the move could also help Dutch and Japanese companies that produce the equipment needed to manufacture chips by giving the impression that the US government’s move was more draconian than it actually was.
A senior commerce department official rejected those claims. He said that while there was some ambiguity when it came to companies that produced tools to make chips in the 10-14nm range, the US would lean very heavily towards denying licences for exports that would help SMIC produce the highest-end semiconductors.
The official added that the commerce department was still in talks with SMIC to see if they could find a mutually acceptable solution, but that it was very difficult to envisage a positive outcome given that the company is based in China and subject to Chinese national security laws and the “military-civil fusion” programme.
Shares in SMIC have fallen more than 8 per cent this week. On Wednesday the company said it was “verifying” reports that Liang Mong-song, its co-chief executive, had abruptly quit.
A day earlier the 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.
Mr Trump last month signed an executive order 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.
The company 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.
Additional reporting by Yuan Yang in Beijing