China’s Chipmaker SMIC Claims No Ties With Chinese Military Despite Receiving Military Award

September 11, 2020 Updated: September 11, 2020

News Analysis

Earlier this year, several U.S. semiconductor equipment companies informed their Chinese clients that the equipment these Chinese companies purchased from them could not be used for military purposes, based on new rules issued by the U.S. Department of Commerce. However, in an attempt to bypass the U.S. rules, some of these Chinese companies now falsely claim that they are not engaged in production for military use.

China’s leading chipmaker SMIC (Semiconductor Manufacturing International Corp.) has stated several times recently that it does not engage in making products for the military. However, the company is fully supported by the Chinese communist regime, including state-owned China Integrated Circuit Industry Investment Fund (CICIIF). It is noteworthy that SMIC received top recognition from the regime for manufacturing a chip for military use.

SMIC is a state-backed semiconductor foundry headquartered in Shanghai. The company creates semiconductor chips, which are used in everything from computers and cellphones to missiles and fighter jets.

China, which is heavily reliant on foreign imports for semiconductors, has aimed to domestically produce 70 percent of its semiconductor needs by 2025, under its ambitious industrial policy “Made in China 2025.”

At a performance and financial report meeting held in mid-May of this year, SMIC’s CEO Zhao Haijun said: “We have maintained good communications with our suppliers and the U.S. Department of Commerce; we abide by the rules and are fully compliant. We promised not to get involved in military businesses since the beginning, and we have kept this promise.”

Military Ties

However, in September 2017, a network switching chip, KD5660, was placed in the spotlight at the third Military-Civilian Integration Development High-Tech Equipment Exhibition held in Beijing as the only chip product independently developed by Chinese engineers.

According to Chinese state media, the chip was designed by Beijing Dongtu Junyue Technology Co., manufactured by SMIC, and packaged and tested by Nantong Fujitsu Microelectronics Co. It was rated as “A-level” by the Equipment Development Department of China’s Central Military Commission—the highest rating for autonomous and controllable high-tech devices.

The chief organizers of this annual national-level military products exhibition were the Equipment Development Department of the Central Military Commission and the Central Military-civilian Integration Development Committee Office.

Public reports released in 2018 showed that the network switch equipped with KD5660 has passed the test of China Telecommunication Technology Labs, a telecom lab under the jurisdiction of the Ministry of Industry and Information Technology, and has been included in the procurement list of the Military Equipment Development Department. In other words, KD5660 is manufactured by SMIC, using its 40nm process technology, and it is used as a core chip in a military switch.

The company that designed KD5660 is Beijing Dongtu Junyue. According to its website, the company focuses on national defense and military industry, and is committed to innovative research of military information network technology and equipment. It provides the Chinese military with integrated communication networks that are developed solely by Chinese researchers. For instance, in 2016, Wang Xiaojun, the then general manager of Dongtu Junyue, told the press that a military-use packet transport equipment designed by the company had been used in key naval ship projects.

Based on public information, Dongtu Junyue’s parent company is Dongtu Technology, both of which are subsidiaries and branches of Dongtu Group, a top military-related enterprise. Dongtu Technology is also an A-share listed company on the Growth Enterprise Market of the Shenzhen Stock Exchange. Currently, its largest shareholder is Beijing Daxing Investment Group, a wholly state-owned company established by Beijing Daxing District Party Committee and District Government.

Dongtu Technology and its wholly-owned subsidiary Dongtu Junyue, are well known in the chip industry for their chip research and development that are targeting both industrial and military fields, and they have several military customers, representing a wide range of army forces. It is hard to believe that SMIC is ignorant of Dongtu’s involvement in military applications.

At present, SMIC’s processing technology is all based on American equipment. China’s tech news and analysis website Semi Insights reported in May that several American semiconductor equipment companies sent letters to Chinese wafer manufacturing companies, including SMIC, stating that the equipment purchased from these companies could not be used to process military products, and the new rule issued by the U.S. Department of Commerce broadens military “end use” and “end user” restrictions. The definition of “military end use” now includes any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, “development,” or “production,” of military items described on the United States Munitions List.

In a response to the new rules, Dongtu Technology made an abrupt statement on May 28 and claimed that the company “has no business dealings with SMIC.”

Moreover, SMIC suddenly claimed that its business is “solely for civilian and commercial end-users” after Reuters reported on Sept. 4 that the Trump administration was considering adding SMIC to a trade blacklist, preventing U.S. companies from doing business with the chipmaker unless they obtain special government-issued licenses.

The official announcement issued by SMIC on Sept. 6 stated: “We have no relationship with the Chinese military. Any assumptions of the company’s ties with the Chinese military are untrue statements and false accusations.”

A ban on SMIC would likely affect China’s tech ambitions.