U.S. blacklists dozens of Chinese firms including SMIC

[December 18, 2020]  By Alexandra Alper, David Shepardson and Humeyra Pamuk

WASHINGTON (Reuters) -The United States confirmed on Friday it will add dozens of Chinese companies, including the country's top chipmaker, SMIC, to a trade blacklist.

The move, which was first reported by Reuters, is seen as the latest in President Donald Trump's efforts to cement his tough-on-China legacy. It comes just weeks before Democratic President-elect Joe Biden is set to take office on Jan. 20.

The U.S. Commerce Department confirmed the decision early Friday, saying the action "stems from China’s military-civil fusion (MCF) doctrine and evidence of activities between SMIC and entities of concern in the Chinese military industrial complex."

Commerce Secretary Wilbur Ross said in a statement that the department would "not allow advanced U.S. technology to help build the military of an increasingly belligerent adversary."

Ross said the government would presumptively deny licenses to prevent SMIC from accessing technology to produce semiconductors at advanced technology levels - 10 nanometers or below.

Ross said in a Fox Business interview that the United States was adding a total of 77 companies and affiliates to the so-called entity list, including 60 Chinese companies. Reuters reported earlier the department was adding about 80 companies, most of them Chinese.

China's foreign ministry said that if true, the blacklisting would be evidence of U.S. oppression of Chinese companies and that Beijing would continue to take "necessary measures" to protect their rights.

"We urge the U.S. to cease its mistaken behavior of unwarranted oppression of foreign companies," ministry spokesman Wang Wenbin told a regular news conference in Beijing on Friday.

SMIC did not immediately respond to requests for comment.

The designations by the Commerce Department include some entities in China that enable alleged human rights abuses and some helping it construct and militarize artificial islands in the South China Sea, the department said.

It also cited entities that acquired U.S.-origin items in support of the People’s Liberation Army’s programs, and entities and persons that engaged in the theft of U.S. trade secrets.

Companies previously added to the list include telecoms equipment giants Huawei Technologies Co and 150 affiliates, and ZTE Corp over sanction violations, as well as surveillance camera maker Hikvision over suppression of China's Uighur minority.

FRAYING TIES

Shares in SMIC, formally the Semiconductor Manufacturing International Corp, fell 5.2% in Hong Kong on Friday, while the company's Shanghai-listed shares declined 1.8%. The benchmark indices in the two markets were down less than 1%.

A logo of Semiconductor Manufacturing International Corporation (SMIC) is seen at China International Semiconductor Expo (IC China 2020) in Shanghai, China October 14, 2020. REUTERS/Aly Song/File Photo

SMIC has already been in Washington’s crosshairs.

In September, the Commerce Department mandated that suppliers of certain equipment to the company apply for export licenses after concluding there was an "unacceptable risk" that equipment supplied to it could be used for military purposes.

Last month, the Defense Department added the company to a blacklist of alleged Chinese military companies, effectively banning U.S. investors from buying its shares starting late next year.

SMIC has repeatedly said that it has no relationship with the Chinese military.

The entity list designation would force SMIC to seek a special license from the Commerce Department before a U.S supplier could send it key goods, part of a bid by the administration to curb its access to sophisticated U.S. chipmaking technology.

Commerce is adding nearly a dozen SMIC-affiliated companies to the entity list, Ross said.

SMIC is the largest Chinese chip manufacturer but trails Taiwan Semiconductor Manufacturing Co, the industry's market leader. It has sought to build out foundries for the manufacture of computer chips that can compete with those of TSMC.

Ties between Washington and Beijing have grown increasingly antagonistic over the past year as the world's top two economies sparred over Beijing's handling of the coronavirus outbreak, imposition of a national security law in Hong Kong and rising tensions in the South China Sea.

(Reporting by David Shepardson and Alexandra Alper; Additional reporting by Humeyra Pamuk, Mike Stone, Karen Freifeld, Gabriel Crossley and Tom Westbrook; Writing by Humeyra Pamuk; Editing by William Mallard and Steve Orlofsky)

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