US Mulls Fresh Restrictions On China’s SMIC

The United State is considering placing targetted restrictions on China, in an effort to thwart advances by Semiconductor Manufacturing International Corp (SMIC).

Reuters, citing five people familiar with the matter, reported that the intention of the Biden administration restrictions would be to hamstring advances by SMIC, without slowing the flow of chips into the global economy.

It comes after the respective heads of the FBI and MI5 in London warned business leaders that the Chinese government is set on stealing their technology for competitive gain. In an unprecedented move, they also warned about the ‘immense’ threat posed by Chinese government’s espionage operations.

US sanctions

It comes after US sanctions were introduced in 2020 to restrict SMIC’s access to US technologies and suppliers, to which the Chinese chipmaker said it was in ‘complete shock’ over the move.

The US had blacklisted SMIC over its relationship to the Chinese military – which SMIC denies.

SMIC is the largest Chinese contract chip manufacturer, but is not as big as market leader Taiwan Semiconductor Manufacturing Co Ltd (TSMC).

Since then SMIC and China itself has been trying to overcome this and become more self-sufficient in cutting edge semiconductor production.

In September 2021 SMIC announced plans to build a $8.87 billion (£6.4bn) chip production plant in a joint venture with the Shanghai city government.

That factory was to specialise in more mature chip technologies using older 28-nanometre manufacturing processes and higher, with a target of producing 100,000 12-inch wafers per month.

SMIC has been producing 14-nanometer chips since late 2019.

Targetted restrictions

In December it was reported that US officials were discussing a Defense Department proposal to close regulatory loopholes that had allowed SMIC to buy critical US technology.

Now the US Commerce Department, which oversees export policy, is actively discussing the possibility of banning exports of chipmaking tools to those Chinese factories that make advanced semiconductors at the 14 nanometer node and smaller, the people told Reuters, in an effort to stymie China’s efforts at making more state-of-the-art chips.

In the meantime, the agency would allow those same tools to be sent to plants owned by the same firms but which make less advanced semiconductors, to safeguard the supply of commodity chips as the world recovers from a chip shortage.

A spokesperson for the Commerce Department did not comment directly on the idea, but was quoted by Reuters as saying “with respect to semiconductor-related export license applications in particular, (Commerce) and the other reviewing agencies … consider a variety of factors in making licensing decisions, including the technology node for the proposed export.”

The agency also stressed that the Biden administration regularly consults with allies and the industry about how best to tailor measures to deny China access to advanced technologies with both civilian and military uses.

SMIC did not respond to a request for comment.

Weaponised tech?

Chinese government officials were quick to respond to the proposed Biden Administration plan.

“By repeatedly seeking to politicise, weaponise and ideologise economic and trade issues and exercise technological blockade and decoupling against other countries, the US would only remind other countries of the risks of technological dependence on the US and prompt them to quickly become independent and self-reliant in science and technology,” a spokesman for the Chinese Embassy in Washington, Liu Pengyu, was quoted by Reuters as saying.

And it is worth noting that if the US move does proceed, it would be the first time the US Commerce Department officially takes a factory-by-factory approach to export policy, although sources told Reuters unofficially it was now applying the approach to SMIC.

It would also allow the Biden administration to tighten export controls on SMIC’s most advanced factories, while allowing tools to flow to its facilities that make commodity chips for cars and everyday consumer electronics.