Reuters first reported on the incorporation of SMIC and other companies on Friday. The move is seen as the latest in Republican Trump’s efforts to polish his image as tough on China as part of the long struggle between Washington and Beijing over trade and numerous economic woes.
The US Department of Commerce said the action against SMIC stems from Beijing’s efforts to leverage civilian technologies for military purposes and evidence of activities between SMIC and Chinese military industrial companies of interest.
The Commerce Department “will not allow advanced American technology to help build the army of an increasingly belligerent adversary,” Secretary Wilbur Ross said in a statement.
The department also said it was adding the world’s largest drone company, DJI, along with AGCU Scientech to the list; China’s national scientific instruments and materials and the Kuang-Chi Group for allegedly allowing “large-scale human rights abuses.”
“The United States will use all available countermeasures, including actions to prevent (Chinese) companies and institutions from exploiting US goods and technologies for malicious purposes,” Secretary of State Mike Pompeo added in a separate statement.
SMIC and the other companies did not immediately comment.
But some lawmakers, industry executives and former officials raised questions about the impact of Friday’s measure against SMIC. In general, companies listed on the entity list must apply for licenses from the Department of Commerce which face rigorous scrutiny when seeking permission to receive items from US suppliers.
But SMIC will only face a rigorous standard of review when seeking licenses for highly advanced US chip-making equipment at 10 nanometers or less. Licenses for all other items shipped to the company will be reviewed on a case-by-case basis, the Commerce Department said.
“It’s a nice (public relations) line: ‘We’re putting him on the baddie list,'” said William Reinsch, a former Commerce Department official, who said he imagines the agency was already blocking shipments of such technology to SMIC. “As a practical matter … nothing changes.”
Republican Congressman Michael McCaul, a senior member of the House Foreign Affairs committee echoed Reinsch’s comments, saying he feared the rules were more “bark than bite.” “I am concerned that it undermines the intent and may create an exception for malicious actors to circumvent US export controls,” he said in a statement.
‘ARBITRARY SUPPRESSION’
But the Chinese authorities were not minding words about Washington’s latest tactic.
In a speech to the Asia Society on Friday, Chinese State Councilor Wang Yi, who is also the country’s foreign minister, pointed to the growing list of US sanctions and called on Washington to halt its “arbitrary suppression” of Chinese companies.
China’s Foreign Ministry said that, if true, the blacklisting would be evidence of US oppression of Chinese companies and that Beijing would continue to take “necessary steps” to protect their rights.
“We urge the United States to stop its wrongful behavior of unwarranted oppression of foreign companies,” ministry spokesman Wang Wenbin said at a press conference in Beijing on Friday.
The Commerce Department published a list of 77 companies and affiliates to the so-called entity list, including 60 Chinese companies.
The Commerce Department designations include some entities in China that allegedly allow human rights abuses and others that help it build and militarize artificial islands in the South China Sea, the agency said.
He also cited entities that acquired US-sourced items to support the Chinese military and those involved in stealing US trade secrets.
Companies previously added to the list include telecommunications equipment giants Huawei Technologies Co and 150 affiliates, and ZTE Corp for sanctions violations, as well as surveillance camera maker Hikvision for suppressing China’s Uighur minority. .
THAWED TIES
Shares of SMIC, formally Semiconductor Manufacturing International Corp, fell 5.2% in Hong Kong on Friday, while the company’s Shanghai-listed shares fell 1.8%. The benchmark indices in the two markets fell less than 1%.
SMIC had already been in the sights of Washington.
In September, the Commerce Department ordered suppliers of certain company equipment to apply for export licenses after concluding that there was an “unacceptable risk” that the equipment supplied to them could be used for military purposes.
Last month, the Department of Defense added the company to a separate blacklist of alleged Chinese military companies, effectively prohibiting American investors from buying its shares starting late next year.
SMIC has repeatedly said that it has no relationship with the Chinese military.
SMIC is the largest Chinese chipmaker, but lags behind Taiwan Semiconductor Manufacturing Co, the industry market leader. It has sought to build foundries for the manufacture of computer chips that can compete with those of TSMC.
Ties between Washington and Beijing have grown increasingly antagonistic over the past year as the world’s two major economies argued over Beijing’s handling of the coronavirus outbreak, the imposition of a national security law in Hong Kong and the increased tensions in the South China Sea.
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