China chip giant SMIC shares plunge after US export controls

Shares in China’s biggest chip maker plunged on Monday following weekend media reports that Washington has imposed export controls on the company, the latest salvo in the battle for technological dominance over Beijing.

In a major blow for China’s advanced tech ambitions, the US Commerce Department reportedly ordered companies to seek permission before selling equipment to Semiconductor Manufacturing International Corp (SMIC).

Equipment sold to the Chinese company posed an “unacceptable risk” of being diverted to “military end use” according to a letter sent to major US computer chip firms that was seen by The Wall Street Journal and the Financial Times.

News of the letter, which was first reported on Saturday, hit SMIC’s share price in Hong Kong Monday morning with the company opening 7.64 percent lower at HK$17.10.

Advanced tech has become one of the many battlefronts that have opened up in the last few years as relations between Beijing and Washington plummet to their lowest levels since diplomatic relations were restarted in 1979.

SMIC is China’s biggest contract manufacturer of chipsets and a key pillar of Beijing’s plans to achieve semiconductor self-reliance.

Analysts say China’s dependence on foreign—including US-made—chips hinders that national goal.

Backed by several state-owned entities, SMIC has made strides at improving China’s chip capabilities but it remains heavily reliant on imported equipment and software.

Under the new rules announced by the Commerce Department, US companies that want to sell equipment to SMIC will now have to apply for a license.

SMIC has not issued a statement since the letter was sent out.

But as reports surfaced earlier this month that US officials were mulling export restrictions, it denied having any relationship with China’s military.

“The Company manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses,” SMIC said.

The export restrictions for SMIC come after a similar US campaign to hobble Chinese telecom giant Huawei, which Washington fears could allow the Chinese government to tap into global telecoms networks.

The US Commerce Department in May announced plans to cut off Huawei’s access to global semiconductor supplies, which the company said would threaten its “survival”.

US President Donald Trump has become increasingly hawkish towards China as he battles for re-election in November.

His administration has also announced plans to ban TikTok and WeChat—two Chinese apps—on national security grounds.

© 2020 AFP