United States Tightens Restrictions on SMIC

The government said there was an unacceptable risk that the company has ties with the military, but SMIC denies this claim

The United States has tightened restrictions in Chinese chip manufacturing company Semiconductor Manufacturing International Corp (SMIC). According to Reuters, the US government came to the decision after concluding that there is an “unacceptable risk” that equipment sold to SMIC could be used for military purposes. 

On Friday, the Commerce Department wrote to the computer chip industry informing them that SMIC had been put on its entity list. The letter stated that exporting products to SMIC would “pose an unacceptable risk of diversion to a military end use in the People’s Republic of China.”

The latest move directly contradicts policy earlier in the year, when the Commerce Department told applicants seeking “military end user” licenses to sell to SMIC that the licenses weren’t necessary. Earlier this month, the Pentagon was deciding whether or not to blacklist SMIC completely, which would make it even more difficult to acquire a license to sell to them.

SMIC is just the next Chinese company the US government has targeted with trade restrictions and bans. Most recently, the focus has been on TikTok, who once again have narrowly swerved a ban on new downloads in the US. 

Last year, the US made it illegal for companies to sell American technology to Chinese technology firm, Huawei without government permission. This year, the US added Huawei to its economic blacklist, making it illegal to sell US technology to Huawei without a special license, which caused the company genuine manufacturing issues.

SMIC said it has not been told about the newest restrictions and that it has no connection to the Chinese military, telling Reuters: “SMIC reiterates that it manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses.

“The Company has no relationship with the Chinese military and does not manufacture for any military end-users or end-uses.”

Nicholas Klein, a Washington lawyer who specializes in international trade, told Reuters that, “from a global economic standpoint,” action against companies like SMIC and Huawei are more significant than those against TikTok. He added that it’s likely to spark retaliation from Beijing, too.

The new restrictions are set to hit SMIC – who relies on equipment produced in the US or US-allied nations – hard. Already, SMIC’s shares have fallen by 7.9% which is the most they have fallen since late May, when they were down 6.7%.

When asked to comment by Reuters, the Commerce Department refused to comment on SMIC specifically but said it is “constantly monitoring and assessing any potential threats to U.S. national security and foreign policy interests”.

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