The United States has blocked American firms from doing business with China’s biggest chipmaker SMIC, over concerns about its alleged connections to the Chinese military.
The U.S. Department of Commerce issued a letter dated Sept. 25 to American companies asking them to acquire a government export license before they can sell certain technology to the Semiconductor Manufacturing International Corp. (SMIC) and its subsidiaries.
In the letter, the Bureau of Industry and Security under the Commerce Department stated that exports to SMIC pose an “unacceptable risk” of being diverted to “military end-use.” As a result, American suppliers “must submit an application for an individually validated license prior to exporting, reexporting, or transferring in-country” to SMIC.
Semiconductor chips power nearly all modern devices, from computers and cellphones to missiles and fighter jets.
SMIC said it had not received any official notice of the restrictions and said it has no relationship with the Chinese military.
"SMIC reiterates that it manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses," SMIC said.
RestrictionsThe administration is concerned about the Chinese Communist Party (CCP)'s state-directed initiative of "military-civil fusion," which leverages cooperation between the military and private industry to advance technology innovations. The fusion effort is now overseen by a Chinese government agency called the Central Commission for the Development of Military-Civil Fusion, established in 2017.
In a Sept. 27 report by China’s hawkish state-run media Global Times, a veteran industry analyst named Ma Jihua said the impact of export restrictions on SMIC “could be catastrophic” for the Chinese chipmaker, since it had not made preparations in advance—unlike Chinese tech giant Huawei.
While it is unclear how much precisely Huawei has spent to stockpile on semiconductor chips before the Sept. 15 deadline, Huawei has been busy buying semiconductor chips from Taiwan, home to the world's largest contract chipmaker TSMC.
In recent weeks, some Taiwanese chipmakers have said they will apply for special U.S. licenses—in compliance with the export restrictions—in order to ship products to Huawei.
China’s Chip AmbitionsChina is currently heavily dependent on foreign chips for its tech manufacturing, though Beijing aims to domestically produce 70 percent of its semiconductor needs by 2025, under its industrial policy of “Made in China 2025.”
China’s regional governments have been rolling out policies, such as incentives and government subsidies, in an effort to boost their local integrated circuit (IC) and semiconductor industries. According to China’s state-run news site 21st Century Business Herald, 7,021 new semiconductor companies were established from January to Sept. 1 this year, citing its own compiled data.
For example, the municipal government in Zhuhai city located in southern China’s Guangdong Province, announced on its website in mid-September that it aimed to boost the local IC industry to a value of 100 billion yuan ($2.9 billion) by the year 2025, with a set of new policies, including offering training and housing subsidies to new recruits at semiconductor companies.
However, it is unlikely China can become self-reliant on chips in the foreseeable future.
“IC Insights forecasts that at least 50% of IC production in China in 2024 will come from foreign companies such as SK Hynix, Samsung, Intel, TSMC, UMC, and Powerchip with fabs in China,” the report stated.
UMC and Powerchip are both Taiwan-based semiconductor companies, while SK Hynix and Samsung are based in South Korea.