China’s largest chipmaker, Semiconductor Manufacturing International Corporation (SMIC), is in discussions with the US Bureau of Industry and Security after being notified that it will be subject to export restrictions.
According to the Financial Times and Reuters, the action was taken due to the Pentagon warning that the company could divert exports to military purposes.
SMIC has maintained that it manufactures semiconductors and provides services “solely for civilian and commercial end-users and end-uses” and that it has no relationship with the Chinese military. At the time of the reports, SMIC said that it is open to communication with US government agencies “in the hope of resolving potential misunderstandings.”
Now, a company filing to the Hong Kong Stock Exchange has shown that SMIC has undertaken unspecified “preliminary exchanges” with the US Bureau of Industry and Security regarding these new restrictions.
“The company is conducting assessments on the relevant impact of such export restrictions on the company’s production and operation activities,” the filing said, according to Reuters. The restrictions could have “material adverse effects” on its manufacturing and other operations, it said.
SMIC advised shareholders and potential investors to exercise caution when dealing in SMIC securities. The company said that it is operating in compliance with the relevant laws and regulations of all jurisdictions in which it operates and will continue to communicate with the US government.
The US restrictions brought against SMIC closely parallel those brought against Shenzhen-based Huawei, which has been subject to export restrictions since May 2019. US President Donald Trump has accused Huawei of potentially acting as an earpiece for the Chinese government; Huawei has consistently denied these accusations.
Since its addition to the ‘Entity List’, restrictions against Huawei have tightened to prevent companies anywhere in the world selling it equipment with US origins, such as high-end semiconductor chips manufactured using extreme-UV etching machinery. With Huawei cut off from its trusted suppliers such as TSMC, and without the capacity to manufacture high-end chips itself, it is uncertain how it will source chips for its future flagship smartphones.
The Chinese government is reportedly planning a vast $1.4tn investment in semiconductors in its next five-year plan, with a view to establishing self-sufficient domestic supplies of high-end semiconductors.