What just happened? In the next installment of the US trade war with China, the Department of Defence has added China's top chipmaker, SMIC, to a list of companies supposed to have ties to the Chinese military, hindering all US trading in the company's shares. This is not the first direct offensive against the firm by the US government during its current administration. The company was slated to produce 70 percent of China's silicon by 2025, but with these new restrictions, these plans may be delayed.
Back in July, we covered the rising tide of Chinese silicon manufacturing through the chipmaker, SMIC, which was founded in 2000 and is currently producing about 20 percent of China's GPUs, CPUs, and network chips, among others. The company has plans to bump this number up to a scorching 70 percent of China's chip manufacturing by the year 2025 through funding from the Chinese government and private investors.
This week, however, the US Department of Defence under the direction of the executive branch has listed SMIC, along with 3 other large industrial firms, as "Chinese military companies." Signed by the president in November, this order follows a hard-line strategy to limit Chinese military development and is part of an end-run, “tough on China” campaign, which Donald Trump’s administration intends to push through before he exits office in January.
What this means for the chipmaker is that US bodies can no longer invest in the company or trade in its stock. While the DoD’s executive decision barred trading in SMIC shares, the spotlight now lies on the Department of Commerce as to whether they will blacklist commercial trade with the company, a move that could seriously limit SMIC’s 5-year plan.
In a statement, SMIC said it has no ties to its national military. Hua Chunying, a Chinese Foreign Ministry spokeswoman, stated, “The US should stop abusing national power and national security concepts to suppress foreign companies.”
In recent years, China has put significant resources into gaining technological independence from international producers, and the national government has been one of the company’s biggest investors.
SMIC is not currently capable of producing chips on modern 5nm or 7nm nodes that are used in the latest and greatest smartphone and workstation silicon. Current estimates suggest the firm is two years behind the tide, largely due to trade restrictions imposed by the US in the past.
In 2018, SMIC apparently attempted to purchase an expensive, modern lithography machine from the only other capable producer, a company in the Netherlands, but this deal was also hindered by US bodies.
Some speculate that further separation from Chinese tech firms increases the likelihood that China will create its own competing tech industry to rival other countries leading the pack. However, others believe that, in a country where the national government is often tied into commercial firms, this “tough-on-China” strategy is important for foreign nations to limit China’s political and military power.
Either way, we will most likely be hearing about SMIC again soon.