US Tightens Exports to China's Chipmaker SMIC, Citing Risk of Military Use

Andrew Cummings
September 28, 2020

The Chinese company indicated last month that in order to avoid USA sanctions, it was willing to abide by the American rules and stop selling chips to Huawei.

A SMIC spokeswoman said Saturday that the company had no relationship with the Chinese armed forces and that it produced chips exclusively for commercial and civilian use.

Last year, the USA placed restrictions on companies selling gear to Chinese telecommunications giant Huawei, over concerns about Huawei's relationship with the Chinese government and fears that its equipment could be used to spy on other countries and companies. The administration has clamped down on shipments to the Chinese tech giant Huawei, restricted exports to dozens of other Chinese companies by placing them on a blacklist this year and moved to ban the Chinese-owned social media services WeChat and TikTok.

SMIC said the company makes chips and provides services exclusively for commercial and civilian customers and purposes and has no relationship with the Chinese military.

The US Department of Commerce did not immediately respond to FT's request for comment.

In a letter communicating the new restrictions to USA companies, the Commerce Department said that it had taken action because exports to SMIC posed an "unacceptable risk" of potentially being used for military purposes.

The Pentagon, in particular, has expressed concerns that SMIC, whose major shareholders include several Chinese state entities, has ties with the Chinese military. (SMIC) could be used for military purposes. "The Entity List rules apply to all USA origin and some foreign-origin items".

SMIC has not been put on the so-called USA entity list, which means the restrictions are not yet as severe as those imposed on China's Huawei Technologies Co. "Nevertheless, SMIC is open to honest and transparent communication with the US Government agencies in hope of resolving potential misunderstandings", SMIC said in a statement on its website. Foreign Ministry spokesman Zhao Lijian accused the US of "blatant bullying".

"What it has done is violated worldwide trade rules, undermined global industrial supply and value chains and will inevitably hurt United States national interests and its own image", Zhao told a news briefing in Beijing. This ranges from telecom giant Huawei Technologies lesser-known companies that are believed by the be involved in human rights violations that have been added to the entity list in recent years.

Back in 2019 the department essentially banned U.S. companies from selling parts and components to 68 Huawei affiliates, allowing, however, for temporary waivers that enabled limited transactions to ease the transition for American suppliers.

China and US flags are seen near a TikTok logo in this illustration picture taken July 16, 2020.

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