SMIC’s ties to the Chinese military are under scrutiny, according to the report
HONG KONG • Semiconductor Manufacturing International Corp (SMIC) tumbled the most in seven weeks following a report that the Trump administration was considering adding the chipmaker to a blacklist amid an escalating crackdown on Chinese technology companies.
The shares plunged 23%, the most since July 16, at the close of trading in Hong Kong, contributing to a 4.6% rout in the Hang Seng Tech Index.
Fellow Chinese chipmaker Hua Hong Semiconductor Ltd plummeted more than 14%. The Defence Department is working with other
US agencies to determine whether to take action against SMIC, which would force American suppliers to seek a special licence before shipping to the company, Reuters reported last Friday.
SMIC’s ties to the Chinese military are under scrutiny, according to the report. The company subsequently said it is “incomplete shock and perplexity to the news”, adding that it has no relationship with the Chinese military.
Chinese tech companies including Huawei Technologies Co Ltd have been caught in the middle of worsening tensions between the two countries, which have clashed on a multitude of issues ranging from trade to the Covid-19 pandemic and a Beijing-imposed security law for Hong Kong. Sanctions against SMIC would be an additional blow to Huawei, which has already been shut out from access to US technologies and equipment.
“If implemented, this will severely undermine SMIC’s ability to advance technologies,” Bernstein analysts led by Mark Li wrote in a note.
“As US equipment is indispensable for advanced semiconductor research and development, and production — such a restriction, once implemented, effectively allows the US government to decide how fast, or slow, SMIC’s technology progress would be.”
Chinese Foreign Ministry spokesman Zhao Lijian accused the US of “blatant bullying” in response to a question about the SMIC report yesterday.
“What it has done has violated international trade rules, undermined global industrial supply and value chains and will inevitably hurt US national interests and its own image,” Zhao told a regular news briefing in Beijing. “We urge the US to stop over-stretching the concept of national security to oppress foreign companies.”
As much as 50% of SMIC’s equipment is from the US, Jefferies LLC estimated. “Should the US export ban on SMIC materialise, it will signal an escalated attack by the US on China’s semi industry and more Chinese companies will likely be included,” analysts led by Edison Lee said. “This is negative not only for China’s semi industry, but also for semiconductor production equipment (SPE) makers globally, as China could account for 24% of global SPE procurement in 2020.”
Clients and suppliers of SMIC also sank, with Gigadevice Semiconductor Beijing Inc and Naura Technology Group Co Ltd losing more than 9% and Datang Telecom Technology Co Ltd sliding 3.1%. The chipmaker’s Taiwanese rival, United Microelectronics Corp, jumped more than 9%.
In response to the widening US crackdown, China is planning to provide broad support for so-called third-generation (3G) semiconductors in its next five-year plan to increase domestic self-sufficiency in chip manufacturing, according to people with knowledge of the matter.
These chipsets are mainly made of materials such as silicon carbide and gallium nitride and are widely used in 5G radio frequency chips, military-grade radars and electric vehicles. — Bloomberg
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