Let the chips fall where they may: US Commerce dept whacks Middle Kingdom firm SMIC on naughty list
- Reference: 1608313507
- News link: https://www.theregister.co.uk/2020/12/18/smic_us_ban/
- Source link:
This action, which the Treasury Department said was intended to protect US national security interests, will prevent SMIC from acquiring certain US technologies. Any business hoping to export to SMIC will first have to apply for a licence to sell to the company.
Moreover, items that will allow SMIC to produce chips at a node of 10 nanometers or below will be subject to a "presumption of denial", in order to prevent them from ending up in the hands of China's military.
The Treasury Department attributed its decision to China's "military-civil fusion" doctrine. This has been described [2]by the State Department's spokeswoman Jenny Bavisotto as "an attempt to deliberately erase the line between China's military and civilian sectors."
"Under military-civil fusion, private companies in China that develop new technologies have little ability to refuse incorporating them into military programs. Cooperation is required by Chinese national security law," Bavisotto said.
In addition, the Treasury Department claimed to have evidence of collaboration between SMIC and "entities of concern in the Chinese military industrial complex."
In a statement, Commerce Secretary Wilbur Ross said: "We will not allow advanced US technology to help build the military of an increasingly belligerent adversary. Between SMIC's relationships of concern with the military industrial complex, China's aggressive application of military civil fusion mandates and state-directed subsidies, SMIC perfectly illustrates the risks of China's leverage of US technology to support its military modernization."
"Entity List restrictions are a necessary measure to ensure that China, through its national champion SMIC, is not able to leverage US technologies to enable indigenous advanced technology levels to support its destabilizing military activities," Ross added.
Industry talk that SMIC would end up on a US entity list [3]has swirled since September , when the US Department of Defence said it was investigating the firm.
Drone downer
More Chinese manufacturers are also being caught up in the banning frenzy it seems.
DJI, the Chinese drone maker that has become very popular in recent years, is [4]reportedly on the ban list too, a senior Commerce department official claimed. The claims of a possible ban on the drone maker caused DJI to [5]undergo a voluntary security audit and install a "local data" mode, but it appears that wasn't enough.
SMIC, which stands for Semiconductor Manufacturing International Corporation, has repeatedly found itself in the crosshairs of departing president Donald Trump's Administration. This attention has coincided with the imposition of sanctions against fellow Middle Kingdom firm Huawei, which is forced to find alternatives to its long-time suppliers.
In September, the Commerce Department introduced some of its first sanctions against SMIC. These new rules mandated suppliers of certain US-origin kit seek prior approval prior to export, but did not represent a wholesale embargo against the company.
Another blow landed early in December, when the Defence Department [6]designated SMIC as owned or otherwise controlled by the Chinese military . Unlike the earlier Commerce Department sanctions, these weren't intended to limit SMIC's access to the supply chain. Nor did they impose any specific financial penalties. However, this designation will ultimately legally prohibit US investors from buying securities issued by the chipmaker.
SMIC has strenuously denied the existence of any ties with Chinese military, and insists it's an independent private company.
Ironically, SMIC was previously listed on the New York Stock Exchange between 2004 and 2019. This 15-year tenure ended in order to allow SMIC to re-IPO on the Shanghai Stock Exchange in July, [7]where it raised $7.57bn , with the funds intended to help it modernise its manufacturing processes.
Collectively, this bevy of sanctions will make it difficult for SMIC to become a viable alternative to other contract foundries, like TSMC and Samsung. The entity list prevents the business from acquiring new equipment. Meanwhile, the Department of Defence designation will limit SMIC's ability to raise capital via future share issuances.
Alongside SMIC, the Commerce Department added a further 60 businesses to the Treasury Department's Entity List. These include companies accused of human rights abuses, helping China's militarisation and territorial expansion in the South China Sea, as well as businesses accused of IP theft and sanctions busting.
The Register has asked SMIC for comment. ®
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[1] https://www.commerce.gov/news/press-releases/2020/12/commerce-adds-chinas-smic-entity-list-restricting-access-key-enabling
[2] https://www.state.gov/chinas-military-civil-fusion-strategy-poses-a-risk-to-national-security/
[3] https://www.theregister.com/2020/09/07/us_ponders_ban_on_smic/
[4] https://uk.reuters.com/article/usa-china-drone/u-s-adding-chinese-drone-company-dji-to-economic-blacklist-official-idUKKBN28S24I
[5] https://www.theregister.com/2020/09/10/dji_local_data_mode_us_potential_ban/
[6] https://www.theregister.com/2020/12/04/smic_added_to_us_no_invest_list/
[7] https://www.theregister.com/2020/07/16/chinas_homegrown_chip_foundary_smic/
[8] https://whitepapers.theregister.com/
If I were in the US administration, I would be more wary of poking the Chinese "bear" too frequently.
They're only going to take it for so long and I can see a trade war being ignited in the not so distant future.
I suspect that the Chinese government are weighing the cost/benefits very carefully. The only thing stopping the Chinese acting more aggressively is that the situation isn't hurting them sufficiently at this point, reciprocating is not in their financial interests.
But these manufacturers are big players. I wonder where that balance would tip.
I suspect that China is waiting to see what Biden will have to say, if he continues the current trend then expect China to rein in on trade, probably starting with rare earths, or at least a threat to do so.
The US has plenty of rare earths production capacity, we just don't mine them here because it is a dirty process and they are cheaper in China where they have fewer environmental regulations.
Most of US production capacity is merely mothballed, it could be spun up in less than a year - no doubt many companies that require rare earths have stockpiled months of supply against such a recurrence, given that they don't take up much space since such tiny quantities are needed for most products.
Trump is actually helping Biden by doing this now: China won't immediately retaliate because they will want to try to avoid escalating before they find out if Biden's administration will be more willing to deal. However, since Biden has said he wouldn't unilaterally undo any of the tariffs/sanctions because "why give up a bargaining chip" Trump is giving Biden more bargaining chips. Since the 'entity list' stuff is (at least in theory, hard to tell in Trump's corrupt administration where policymakers overrule career people all the time) coming from the intelligence community, how willing his administration will be to make deals will depend on what the intelligence people say. How real are these threats, versus being used as an excuse to go after China?
"why give up a bargaining chip"
Ho ho ho.
There already is a trade war
Did you miss China adding retaliatory tariffs more than once?
If you are thinking they might ban the hugely long list of US companies from manufacturing products in China, that would devastate China's economy in a much more long lasting way than the 9-18 months or so it would hurt US companies like Apple, Dell, Amazon, Microsoft, etc. etc. etc. before contract manufacturers like Foxconn could expand existing factories in Vietnam, Brazil, India, etc.
Its a 'dragon', not a bear.
This will cause more pain in the long term
China will develop it's own sub 10nm technology and sell it to the rest of the world.
Sure, it's going to take them a few years to get there.
Re: This will cause more pain in the long term
Simple Newtonian cause and effect.
Previously it was a 25-year plan. Now it is a 5-year plan.
Re: This will cause more pain in the long term
Or just order parts from Korea and Taiwan where it's made rather than "on the road map"
Confused
A company set up to compete with Intel and which so far has failed to do so after many years of trying and many billions of dollars is a threat to national security? Despite the many more billions of dollars spent on national security?
Major Growth Industry
Obviously one of the principal US exports in the future is going to be sanctions of one sort or another. Just think of all the effort neded to identify companies and entities to be sanctioned and all the follow up to make sure that those sanctions are enforced.
The joke being that all this activity is actually giving employment to the Chinese -- they make the phones, computers, printers and what-have-you that keeps modern bureaucracies humming.
A couple of kilograms of Moon rock made it back to China yesterday despite all the ongoing, crippling, sanctions. Its an interesting science and engineering experiment but its also sending a bit of a message to anyone receptive enough to listen.
Horse, Door
Oops, too late!