SMIC, China’s Biggest Chipmaker Banned From Accessing US Technology

China’s top chipmaker maker already had a tough week. Now its problems are taking a worse shape.

The U.S. government on Friday imposed serious restrictions on the Semiconductor Manufacturing International Corporation (SMIC) as Trump administration continues to put pressure on Chinese companies during its final weeks.

The Entity List

Many Chinese companies, including SMIC and DJI drone manufacturers, have been added to the Department of Commerce’s Entity List, which cuts across well into American suppliers and technologies.

“We will not allow high-tech Americans to help build a rival military force that continues to fight,” U.S. Trade Secretary Wilbur Ross said in a statement, adding that the company was “clearly portraying” China’s dangers of using US technology to modernize politics.

SMIC has previously stated that it has no ties to the Chinese military.

What This Means For SMIC?

This move could create major problems for SMIC, such as many global manufacturers that rely on American software, machinery and other equipment to design and manufacture semiconductors. Chinese smartphone maker and 5G network provider Huawei, for example, has seen its sales growth slow down since it was added to the list last year.

Business listing requires US exporters to apply for a sales license from SMIC. “Particularly required to produce semiconductors on advanced technology nodes – 10 nanometers or less – will depend on the notion of a ban on such technologies that help support China’s military integration efforts,” the US Department of Commerce said.

SMIC is already facing another major issue. Chinese media reported earlier this week that its chief executive Liang Mong Song is resigning. Unusually, the company said in a statement Wednesday that it was trying to confirm the reports, even though it was aware of Liang’s “intention to resign under certain conditions.”

The company did not immediately respond to a request for comment Friday, and has never submitted new statements to the Shanghai Stock Exchange regarding Liang or American sanctions. While the U.S. announcement came well after the normal working hours in Shanghai on Friday, Reuters reported earlier that the Department of Commerce’s announcement was coming.

China’s Response

Asked about a Reuters report, a Chinese Foreign Ministry spokesman on Friday accused Washington of “using its state power to oppress Chinese companies.”

“We urge the United States to stop its unethical behavior by unfairly oppressing foreign businesses,” Wang Wenbin told reporters at a news conference. “China will continue to take the necessary steps to protect the legal rights and interests of Chinese businesses.”

Stock Reaction

SMIC shares plummeted by about 5% in Hong Kong on Friday, and losses accelerated following a Reuters report. Stocks lost about 10% this week, the worst since September, when media reports suggest the US government is considering setting limits on its business.

SMIC plays a very important role in providing China’s technological ambitions. Much of China’s chipset supply comes from foreign companies, which enable everything from Chinese smartphones and computers to telecommunications. Last year the country imported chips worth $ 306 billion, or 15% of total national purchases, according to government statistics.

The company, which owns large shares in state-owned companies, said earlier this year that it wanted to invest in technology and hold its competitors. But SMIC still has three to five years to go before industry leaders Intel (INTC), Samsung and TSMC (TSM) and analysts say it is still a long way off to compete globally.

Liang’s loss could complicate matters, as the company’s recent technological advances are “directly caused” by him, Bernstein analysts wrote in a research paper earlier this week.

Pressure from Washington threatens to make it even harder for the company to hold foreign competitors.

The U.S. Department of Defense earlier this month added the company to a list of companies that the agency claims to own or be controlled by Chinese troops. That ruling means Americans are banned from investing in SMIC.