China Chip Giant SMIC Shares Sink on US Export Controls

 In China, FVEY, P5

Shares in China’s biggest chip­mak­er tum­bled Monday on reports that the United States had imposed export con­trols on the com­pa­ny, the latest salvo in the coun­tries’ battle for tech­no­log­i­cal dom­i­nance.
In a new blow for China’s advanced tech ambi­tions, the US Commerce Department report­ed­ly ordered com­pa­nies to seek per­mis­sion before sell­ing equip­ment to Semiconductor Manufacturing International Corp (SMIC).

Equipment sold to the Chinese com­pa­ny posed an “unac­cept­able risk” of being divert­ed to “mil­i­tary end use”, accord­ing to a letter sent to major US com­put­er chip firms that was seen by The Wall Street Journal and the Financial Times.

News of the letter, which was first report­ed Saturday, sent SMIC’s shares plung­ing in both Shanghai and Hong Kong on Monday, clos­ing down seven and 3.9 per­cent respec­tive­ly.

Asked about the new con­trols at a daily press con­fer­ence Monday, Chinese for­eign min­istry spokesman Wang Wenbin said Beijing opposed Washington “abus­ing export con­trols and other restric­tive mea­sures to unrea­son­ably sup­press Chinese com­pa­nies”.

Advanced tech has become one of the many bat­tle­fronts that have opened up in the past few years as rela­tions between Beijing and Washington plum­met to their lowest levels since diplo­mat­ic rela­tions were restart­ed in 1979.

SMIC is China’s biggest con­tract man­u­fac­tur­er of chipsets and a key pillar of Beijing’s plans to achieve semi­con­duc­tor self-reliance.

Analysts say China’s depen­dence on for­eign — includ­ing US-made — chips hin­ders that nation­al goal.

Backed by sev­er­al state-owned enti­ties, SMIC has made strides at improv­ing China’s chip capa­bil­i­ties but it remains heav­i­ly reliant on import­ed equip­ment and soft­ware.

Under the new rules announced by the Commerce Department, US com­pa­nies that want to sell equip­ment to SMIC will have to apply for a licence.

“The restric­tion, once imple­ment­ed, will severe­ly damage SMIC’s exist­ing and future man­u­fac­tur­ing capa­bil­i­ties, and cus­tomer trust,” Bernstein ana­lysts led by Mark Li wrote in a note.

“Without steady supply and ser­vice from the US, the yield and qual­i­ty of SMIC’s capac­i­ty will degrade, as early as in a few months for more advanced nodes.”

Tit-for-tat tech ten­sions
SMIC said Monday it had yet to receive any noti­fi­ca­tion of the new restric­tions from the Commerce Department.

“The com­pa­ny has no rela­tion­ship with the Chinese mil­i­tary and does not man­u­fac­ture for any mil­i­tary end-users or end-uses,” it said in a state­ment.

The export restric­tions for SMIC come after a sim­i­lar US cam­paign to hobble Chinese tele­com giant Huawei, which Washington fears could allow Beijing to tap into global tele­coms net­works.

The Commerce Department in May announced plans to cut off Huawei’s access to global semi­con­duc­tor sup­plies, which the com­pa­ny said would threat­en its sur­vival.

The move against SMIC is less severe than plac­ing Huawei on its so-called entity list — a de facto black­list­ing — but it will prob­a­bly fur­ther anger Beijing.

Donald Trump has become increas­ing­ly hawk­ish towards China as he bat­tles for re-elec­tion in November.

His admin­is­tra­tion has also announced plans to ban Chinese social media apps TikTok and WeChat on nation­al secu­ri­ty grounds.

Those advo­cat­ing a more hawk­ish stance towards Beijing have long warned of a sym­bi­ot­ic rela­tion­ship between Chinese com­pa­nies and the country’s mil­i­tary and secu­ri­ty appa­ra­tus.

They have also com­plained of unfair trade prac­tices such as intel­lec­tu­al prop­er­ty theft and state-spon­sored cyber espi­onage.

But many ana­lysts argue that Trump’s actions could back­fire on the US tech sector and other American busi­ness­es by encour­ag­ing China and other coun­tries to respond in kind.

DefenceTalk source|articles

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