“In Complete Shock”: China’s Lead Chip Maker Denies PLA Military Ties As Trump Mulls Blacklisting

Executives of Chinese companies which produce chips — vital in every device that stores data from computers to mobile phones to barcode scanners — are increasingly worried their industry is next on the Trump sanctions hit list, also after widespread reports that Beijing plans to in desperation ramp up its lagging domestic semiconductor development over the next decade as continued outside access to the most advanced chips looks increasingly in doubt.

Some are speaking out, attempting to make crystal clear to Washington that they are not puppets of either the Chinese state or PLA military. The country’s largest and leading homegrown chipmaker, Semiconductor Manufacturing International Corp. (SMIC), is vehemently denying its technology is for military use after Reuters on Friday said Trump is mulling adding the publicly traded company to a US blacklist.

The Shanghai-based company expressed that it is “in complete shock” over contents of the report, which said earlier this past week that “the Pentagon made a proposal to place SMIC on the entity list to the End User Committee, a panel led by the Commerce Department that also includes the State and Energy Departments and makes decisions about entity listings.”

A follow-up official Semiconductor Manufacturing International statement said Saturday:

“The company manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses. We have no relationship with the Chinese military.”

The statement added, “Any assumptions of the company’s ties with the Chinese military are untrue statements and false accusations.”

At moment there’s an inter-agency review underway in Washington over whether to add the company to the list, which would immediately require American suppliers to obtain a specially approved license in order to ship materials to the company. If it goes on the list, SMIC would go the way of Huawei in facing huge hurdles and intense scrutiny any time it does business with Western companies. 

Meanwhile some are counter-threatening various nuclear option scenarios, a rapid downward spiral:

US/China tit-4-tat horror.
“The suggestion from econ prof Li Daokui that China curb exports of medicines as a means of countering US economic curbs on Chinese access to semiconductor products is plainly wrong, dangerous…”https://t.co/2jIKw0CoJv

— Laurie Garrett (@Laurie_Garrett) September 1, 2020

Consider the dire warnings issued at the World Semiconductor Conference held in Nanjing at the end of August of the fragile early state of China’s domestic capabilities. 

Bloomberg relates of one of the more revealing conference moments:

“The entire chip industry is too fragile to defend itself. We are at least 20 years behind comparing to Silicon Valley from scale and quality of talent to size of the ecosystem,” said Wang Xuguang, chief executive officer of AINSTEC, a Suzhou-based company that develops 3D visual chips. “If we can prosper (with the U.S.), that’s the best, but if the situation doesn’t allow this to happen, we need to think what we have on our hands.”

Crucially, China remains the world’s largest importer of chips, and will spend some $300 billion to import semiconductors this year.

The country still faces a huge technology gap in this area which Chinese developers have struggled to close over and ahead of more advanced industry rivals in the US, Japan, and Europe.