China’s biggest chipmaker added to Entity List

SMIC has been formally added to the Entity List by the US Commerce Department, hitting the Chinese chipmaker’s access to American technology and equipment.

The Commerce Department announced that it had added 77 new names to the Entity List. Sixty-one of the new additions were from China, the rest from Bulgaria, France, Germany, Hong Kong, Italy, Malta, Pakistan, Russia, and the UAE.

China’s biggest chipmaker, Semiconductor Manufacturing International Corporation Incorporated (SMIC) was the first name to appear on the list. The punishment for SMIC has been a long time coming. In September it was reported, through possibly a controlled leak to selected media, that the Commerce Department was already discussing hitting the Chinese chipmaker with the ban.

With the official designation on the Entity List, SMIC’s access to American equipment and American technology in making microprocessors will be much more restricted than before. The more advanced technologies for semiconductor processes of 10nm and below, which are needed for the high-end smartphones among other computing devices, “will be subject to a presumption of denial to prevent such key enabling technology from supporting China’s military modernization efforts.”

Ten of SMIC’s associated companies, most of them local branches of the company, were also put on the list. The company has long denied supplying products for military use.

The decision specifically said the restriction covers extreme ultraviolet technology. The Dutch company ASML, the only company in the world that can supply such technology to make high-end chips, will not be able to sell the machines needed by SMIC without special licence because it uses American suppliers. The company has not been able to obtain the licence since last year, according to reporting by Nikkei.

“Over the last two years this administration has added nearly 50 entities to the Entity List for their support for the Chinese Communist Party’s despicable offensive against vulnerable ethnic minorities,” the Commerce Secretary Wilbur Ross said in a statement. “With these new additions, we are applying those principles to the rest of China, including in Tibet, and to the authoritarian regimes to which these practices are being exported.”

DJI, another Chinese company and the world’s largest drone maker, was also added to the list, together with three other companies of the same type of business, for being judged to “have enabled wide-scale human rights abuses within China through abusive genetic collection and analysis or high-technology surveillance, and/or facilitated the export of items by China that aid repressive regimes around the world, contrary to U.S. foreign policy interests.”

The restrictions on DJI (and the other three in the same bracket), however, are slightly different from those put on SMIC. In DJI and co’s case, the Bureau of Industry and Security (BIS) “imposes a license review policy of case by case review for items necessary to detect, identify and treat infectious disease and a presumption of denial for all other items subject to the EAR (Export Administration Regulations)”.

A handful of Chinese academic institutions are also put on the list, including Beijing University of Posts and Telecommunications, which has produced the vast majority of the leadership of China’s telecoms industry, including those in the regulator, operators, as well as vendors. Its offence is deemed to have “directly participated in the research and development, and production, of advanced weapons and advanced weapons systems in support of People’s Liberation Army modernization, which poses a direct threat to U.S. national security.”

The new restrictions on SMIC and its associates could be seen as another hit on China’s chip industry and those businesses that need those chips, an obvious example in this industry being Huawei’s high-end smartphones. Meanwhile, it could also have unintended impact on America’s chip industry. Most American chip companies are fabless, who would rely on foundries to manufacture the chips for them. Qualcomm, believed to be SMIC’s second largest customer (after Huawei), could find itself searching for other foundries. A likely beneficiary from the new restrictions on SMIC could be its main competitor, Taiwan Semiconductor Manufacturing Co. (TSMC).