The US Department of Defense proposes to upgrade the sanctions against SMIC, the US Department of Commerce opposes

The U.S. Treasury Department implemented a “precision strike” at the critical moment of SenseTime’s IPO, which caused an uproar in the market. At the same time, U.S. media broke the news that the U.S. Department of Defense wants to upgrade its sanctions on SMIC to restrict the company’s access to 14nm and below production tools. Not only that, in order to maintain the dominant position in the technology sector, US officials are also considering adding more Chinese technology companies to the list of entities and the list of prohibited US investment.

However, opinions within the Biden administration on expanding sanctions against Chinese companies are not uniform. U.S. media reported that the U.S. Department of Commerce has objections to some of these plans. The department said that if the restrictions on SMIC are upgraded, it will damage the profits of US companies and exacerbate the global chip shortage that has affected a large number of industries. At present, China is the largest market for American semiconductor equipment suppliers such as Applied Materials and Panlin Semiconductor, and some of the power management chips of the American company Qualcomm are also found by SMIC.

The US Department of Defense proposes to upgrade the sanctions against SMIC, the US Department of Commerce opposes

Screenshot of the Wall Street Journal report

On December 11, the Wall Street Journal reported that US officials planned to discuss a proposal by the US Department of Defense this month to prevent SMIC from acquiring more advanced production equipment. A so-called person familiar with the matter said that although SMIC has been included in the US entity list, the company can still purchase US equipment.

A year ago, the US Department of Commerce included SMIC on the list of entities. The announcement at that time showed that American companies must obtain export licenses for products or technologies that are applicable to the U.S. “Export Control Regulations” before they can supply SMIC; for SMIC products or technologies used at 10nm and below technology nodes, U.S. business The Ministry will “presumptive rejection”, and SMIC’s contract manufacturing for some special customers may also be restricted.

But the US Department of Defense feels that such restrictions are simply not enough. The department believes that after SMIC has entered the entity list, it can still purchase equipment for 14nm and above processes, and these production equipment can be used to produce chips with smaller processes after adjustment, so the previous restrictions are meaningless.

The Wall Street Journal quoted people familiar with the matter as saying that with the support of officials from the US State Department and the Department of Energy and the US National Security Council, the US Department of Defense hopes to modify the sanctions against SMIC to restrict the company’s access to chips that can produce 14nm and below process chips. To expand the list of products not available to SMIC. Currently, the fastest supercomputer in the United States uses chips produced by the 14nm process.

Along with SMIC, the Chinese artificial intelligence company Shangtang Technology is also being targeted. On December 10, on the same day that SenseTime originally planned to determine the IPO price, the US Department of the Treasury announced that the company was included in the list of “Chinese military-industrial complex enterprises”. US investors were prohibited from investing in companies that entered this list. At present, Hong Kong stocks have a large number of investors from the United States. In the past few years, SenseTime has completed 12 rounds of financing, with investors including a large number of USD funds. The company is included in the investment ban list, which means that the IPO will be severely affected.

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The “Wall Street Journal” commented that the US officials’ close attention to SenseTime and SMIC’s actions showed that under the joint appeal of the two parties in Congress, the Biden administration is increasingly tightening restrictions on Chinese technology companies. This is a competition for the United States. Part of global technological dominance. Some people familiar with the matter also said that US officials are considering adding more Chinese technology companies to the Ministry of Commerce’s entity list and the Ministry of Finance’s list of prohibited US investment in the coming months.

But opinions within the Biden administration are not uniform. People familiar with the matter said that some officials of the US Department of Commerce are trying to prevent the US Department of Defense from escalating its sanctions against SMIC. U.S. Department of Commerce officials and U.S. equipment manufacturers told other officials that if the restrictions on SMIC are adjusted, it will harm the profits of U.S. companies and exacerbate the global chip shortage that has affected a large number of industries.

Currently, SMIC’s US equipment suppliers include Fanlin Semiconductor, Applied Materials, and Ketian.

The financial report shows that in the 2020 fiscal year, Fanlin Semiconductor’s revenue in mainland China is US$3.084 billion (approximately RMB 20.03 billion), accounting for 31% of total revenue. Mainland China is its largest market; Applied Materials is operating in Mainland China Revenue 1.576 billion U.S. dollars (approximately RMB 10.24 billion), accounting for 34% of total revenue, mainland China is its largest market; Ketian’s revenue in mainland China is 1.458 billion U.S. dollars (approximately RMB 9.47 billion), accounting for 34% of total revenue. The proportion of total revenue is 25%, and mainland China is its second largest market.

(Note from Observer Network: The 2020 fiscal year of Ketian and Panlin Semiconductor is the 12 months before the end of June 2020, and the 2020 fiscal year of Applied Materials is the 12 months before the end of October 2020)

Right now, SMIC is in a critical stage of expansion. At the performance analysis meeting in the third quarter of this year, Zhao Haijun, co-CEO of SMIC revealed that in terms of mature manufacturing processes, the domestic terminal market has always been in short supply. On the whole, the company’s expansion schedule this year has been achieved as scheduled. In the fourth quarter, the company will further accelerate the execution speed and intensity of capital expenditures, optimize procurement, logistics, and equipment installation, and strive to ensure the expansion of next year.

However, industry insiders pointed out that if the United States restricts SMIC’s acquisition of 14nm and below production equipment, many 40nm equipment like etching machines, 12 and 14nm processes can also be used, and may be restricted together, SMIC’s mature process expansion Or will be affected.

In response to the continuous use of “entity list” and other means to suppress Chinese companies, the Chinese Ministry of Foreign Affairs has repeatedly stated its solemn position: Chinese companies have always adhered to operating in compliance with laws and regulations, and strictly abide by the laws and regulations of the host country in their international operations. The U.S. should stop its misconduct of abusing national power and generalizing the concept of national security to suppress foreign companies. Containment and suppression will not stop China from developing and growing. It will only undermine the mutual trust and cooperation between China and the United States, intensify conflicts and frictions between China and the United States, and will only make the Chinese people more united and build a stronger China.

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