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Sept. 5, 2020, 3:09 p.m. EDT

U.S. weighs export controls on China’s top chip maker

Imposing controls would mark a major escalation in the Trump administration’s crackdown on Chinese tech companies

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By Dan Strumpf

Associated Press

The Trump administration is weighing whether to place export restrictions on China’s most advanced manufacturer of semiconductors, a move that could cut to the heart of China’s ambitions to become self-reliant on critical technologies.

U.S. agencies are in discussions to determine whether Semiconductor Manufacturing International Corp. should be added to the Commerce Department’s “entity list,” a step that would require companies to go through a difficult layer of review before exporting any U.S. technology to SMIC, said a spokeswoman for the Defense Department, which is taking part in the effort.

The step is the same one that U.S. officials imposed on Chinese telecom equipment maker Huawei. The decision to add Huawei Technologies Co. to the entity list, along with later steps to close off loopholes and further starve the company of components, has threatened its business and worsened U.S. relations with China.

Any decision to impose export controls on SMIC would mark a major escalation in the administration’s crackdown on Chinese tech companies. It could also frustrate the U.S. companies that collectively sell billions of dollars worth of chip-making technology to Chinese manufacturers.

Among the issues being considered is whether SMIC aids China’s defense establishment, people briefed on the discussions said. A research report produced last month by U.S. defense contractor SOS International LLC argues that it does.

The report says the company has worked with one of China’s largest defense conglomerates and that researchers at universities linked to China’s military have designed their work to fit SMIC technology. They include a Chinese military academy that the Commerce Department placed on an export blacklist in 2015 for its alleged work designing chips used in supercomputers that simulate nuclear tests.

A SMIC spokeswoman denied the report’s findings, saying in an email that SMIC “has made full commitment of no military use since the company was established.”

On Saturday, the company posted a lengthier statement to its WeChat social-media account, saying it manufactures semiconductors “solely for civilian and commercial end-users and end-uses.” It said the Commerce Department has granted numerous export licenses for the company over the years.

The Commerce Department can require suppliers to obtain licenses before exporting certain U.S.-origin technology to companies like SMIC by adding them to the entity list or deeming them to be advancing China’s military aims. A Commerce Department spokesman declined to comment.

Founded in 2000 by a veteran of U.S. and Taiwanese chip companies, SMIC grew to become China’s largest contract manufacturer of chips and was at one time a major producer for North American chip companies.

Like virtually all chip makers, SMIC relies on American manufacturing technology to build and test its chips. U.S. firms account for 45% of the global market for chip manufacturing equipment, according to industry group SEMI.

“The U.S. still has the stranglehold on the technology that they need,” said Paul Triolo, head of the global technology policy practice at political risk consulting firm Eurasia Group.Mr. Triolo, who had reviewed the SOS report, described the military links it alleged as tenuous.

SMIC was traded on the New York Stock Exchange for more than a decade but pulled its listing last year citing costs and low trading volumes.

Earlier this year, the Trump administration gave Commerce Department officials more power to stop exports of sensitive U.S. technologies that aid China’s military, part of its effort to hobble China’s strategy of leaning on private companies to advance its military ambitions, an effort known as “military-civil fusion.”

An expanded version of this story appears on WSJ.com.

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