US restricts exports to China’s top chipmaker

SMIC is China's largest foundry- U.S. sanctions another Chinese tech firm and threatens to put it on the Entity List

SMIC is China's largest foundry

The U.S. imposed export restrictions on Semiconductor Manufacturing International Corp., taking aim at another prominent Chinese technology company and adding to tensions between the two countries over the critical industry.

The move threatens to cut off China's biggest chipmaker from crucial USA software and chipmaking equipment. SMIC will have to turn to non-US technology whenever it wants to improve its production or maintain hardware, and there is no guarantee that it will find what it needs. However, the U.S.is said to be considering more severe measures against SMIC including the possibility of placing the company on the Entity List.

SMIC, a "national champion" that is vital to the federal government's hopes of attaining chip self-sufficiency, ended up being the nation's biggest going public for a years when it raised $7.6 bn in Shanghai previously this year.

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SMIC has already lost business with its biggest customer Huawei due to United States sanctions. This meant that SMIC could no longer serve its largest customer, which generates a fifth of its revenues. The chipmaker had warned of similar sanctions in its IPO prospectus in July.

The sanctions will likewise impact Qualcomm, the USA chip designer which utilizes SMIC to make a few of its chips.

The semiconductor manufacturer is the second top company to be included in the company list After Hawaii.

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The Department of Commerce "has told U.S. computer-chip companies that they must obtain licenses before exporting certain technology to China's largest manufacturer of semiconductors", according to the business daily.

"SMIC reiterates that it manufactures semiconductors and provides services exclusively for civilian and commercial end-users and end-uses".

SMIC added it had not received any formal notification of the sanctions. Last weekend, China's Ministry of Commerce announced broad powers to curb the operations of foreign companies deemed "unreliable", such as companies that "boycott or cut off supplies" to Chinese companies.

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Lawyers are anxious that Beijing's "unreliable entities list" might be utilized to penalize foreign business that perform sanctions versus Chinese business, putting such business in a bind in between USA and Chinese law. Now, American companies must obtain licenses from the government in order to sell products, such as software and chip-making equipment, to SMIC. While the effect of the ban won't be clear until the Commerce Department decides who (if anyone) gets a license, it could represent a significant blow to Chinese tech as a whole. SMIC and its subsidiaries present "an unacceptable risk of diversion to a military end use", the department's Bureau of Industry and Security wrote. The fear from the US side is that there is an "unacceptable risk" that the chips produced by SMIC could end up being used on military goods.

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