Sunday, 25 October 2020

“Unacceptable risk”: US restricts exports to China’s biggest semiconductor company SMIC

by Harry Baldock, Total Telecom
Monday 28 September 20

Companies must now apply for a licence to export to Semiconductor Manufacturing International Corporation (SMIC), further diverging the tech paths between East and West

Reports last week showed that the Pentagon was weighing blacklisting SMIC, China’s leading semiconductor manufacturer, arguing that its perceived involvement with military technology alongside civilian products could make it a security threat. This discussion came to a head on Friday, with a letter seen by the media suggesting that the blacklist would indeed go ahead, with companies needing to acquire a permit to export to the Chinese company…

Reports last week showed that the Pentagon was weighing blacklisting SMIC, China’s leading semiconductor manufacturer, arguing that its perceived involvement with military technology alongside civilian products could make it a security threat. This discussion came to a head on Friday, with a letter seen by the media suggesting that the blacklist would indeed go ahead, with companies needing to acquire a permit to export to the Chinese company. 
 
SMIC argues that the restrictions are unwarranted, saying that it has no relationship to the Chinese military and “manufactures semiconductors and provides services solely for civilian and commercial end-users”.
 
News of the sanctions had an immediate impact on the Chinese company, which relies heavily on US technology, seeing its shares fall by around 8%.
 
This is, of course, the latest in a series of technological clashes in the geopolitical conflict between China and the US. While China has rolled out 5G on a massive scale, semiconductor tech is an area where the US has a pronounced lead and these sanctions against SMIC show that the Trump administration is willing to push that advantage as hard as possible.
 
Earlier this month, China created its own ‘entity list’, likely to put pressure on US firms similar to that applied to Huawei and ZTE. While no specific companies have yet been named on the list, it seems likely that targets will include major tech players like Apple and Cisco, who both do significant business in China.
 
But beyond two superpowers firing shots across each others bows, these constant increases in pressure could have a much more long lasting effect on the balance of the global tech infrastructure. With politics making international cooperation between companies harder and harder, tech supply chains are destined to become significantly diverged, with greater reliance on domestic and allied production lines. 
 
An anonymous op-ed for the Global Times called the US dominance of the semiconductor industry a “fundamental threat” to China, imploring the nation to “control all research and production chains of the semiconductor industry, and rid itself of being dependent on the US”. 
 
“From Huawei to SMIC, the Chinese people should see for themselves that we are facing a protracted battle against high-tech suppression being led by the US. This is almost the key process for the great rejuvenation of the Chinese nation,” wrote the author, calling the process “a long march”. 
 
The creation of fully diverged tech industries poses a myriad of problems on the international stage, potentially leading to diverse mobile standards and a significant lack of interoperability. Progress towards producing self-reliant supply chains will be a long and painful process, especially for China but, as the op-ed shows, doing so is becoming a matter of national pride as much as economic necessity. 
 
 
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