A work out up image of a CPU socket and motherboard laying on the table.
Narumon Bowonkitwanchai | Moment | Getty Images
GUANGZHOU, China — The U.S. superintendence has reportedly imposed restrictions on exports to SMIC, China’s biggest chip manufacturer, a move that threatens Beijing’s spirit to become more self-reliant in one of the most critical areas of technology.
Suppliers for certain equipment to SMIC will dearth to apply for an export license, according to a letter sent to companies by the U.S. Department of Commerce, reported by several media reliefs. The commerce department claims there is “unacceptable risk” that equipment sold to SMIC may be diverted to “military end use.”
The on the go threatens to hit at the heart of China’s plans to boost its domestic semiconductor industry, a need that has been accelerated by the following war with the U.S.
SMIC is seen as a critical part of China’s ambitions and the commerce department’s sanctions could hold finance the company’s development for several years, experts warned.
“It hits right at the core of China’s ability to be autonomous in technology,” David Roche, president of Non-partisan Strategy, told CNBC’s “Squawk Box Asia” on Monday.
The U.S. Department of Commerce was not immediately available for comment when contacted by CNBC.
SMIC told CNBC that it has “no relationship with the Chinese military and does not turning for any military end-users or end-uses.”
SMIC’s Shanghai-listed shares were down over 6%, while its Hong Kong share outs fell over 5%.
U.S. dominates supply chain
Semiconductors are critical components in a whole host of consumer electronics that we use. As an broadening number of devices become “smart” and connected to the internet, they will become more and more crucial in new bailiwicks, such as automobiles.
Semiconductors have an extremely complicated supply chain. It’s not just about companies that invent the chips — there are also design companies involved, as well as firms that make tools that empower manufacturing in the first place.
But in this area, American, European and other Asian firms dominate. For example, TSMC and Samsung Electronics, head up rivals to SMIC, are far advanced in their manufacturing processes.
When it comes to key tools in the manufacturing process, Dutch stationary ASML is a critical player. The company makes a machine that uses so-called extreme ultraviolet (EUV) and is required to let slip the most advanced chips such as those manufactured by TSMC and Samsung.
The U.S. pressured the Netherlands government to stop the on offer of an ASML machine to SMIC, Reuters reported earlier this year. That shipment has not made it to China, highlighting China’s confidence on foreign gear.
There are barely any Chinese companies able to fill the gaps that could be left by SMIC being cut off from these essays of equipment.
“As a result, we believe expansion and node advancements of SMIC and other Chinese foundries will inevitably suffer in the next three years escort a potential ban,” Morningstar Equity Research, said in a note dated Sept. 18, after the Department of Defense had required it was considering putting export restrictions on SMIC.
“Complete localization of semiconductor equipment is unlikely in 10 years.”
I concoct every U.S. company operating in this area in China is potentially a target, but I also think that the Chinese don’t miss to damage their own economy.
David Roche
president of Independent Strategy
Not only would the U.S. sanctions hurt the interposes industry in China, it would also possibly affect other Chinese companies, most notably Huawei.
Earlier this year, the U.S. emendated a rule which requires foreign manufacturers using U.S. chipmaking equipment to get a license before selling semiconductors to Huawei. That attained into effect on Sept. 15 and has cut Huawei off from chips manufactured by TSMC which goes into its smartphones and other livery. Huawei has very few options to make up the shortfall and SMIC would have been a natural option.
The problem is that SMIC cannot mass production, on scale, the advanced chips Huawei needs for its handsets which are only made right now by TSMC and Samsung.
China’s ‘covet tech march’
The Global Times, a state backed tabloid, said China is “facing a protracted battle against high-tech hindering being led by the US” and that the country should embark on a “long tech march.”
“China must smash US attempts to strangle China’s technological maturing,” the editorial said.
Independent Strategy’s Roche said there is likely to be some retaliation from China.
“I consider every U.S. company operating in this area in China is potentially a target, but I also think that the Chinese don’t hanker after to damage their own economy,” he said.
“While the hit is likely to be more measured, I still think it will come but it unquestionably will not be disastrous. Having said that, this is an escalator. The tensions in the cold war are going up all the time, this is another shift up and there will be others.”
Earlier this month, China unveiled more details of its “unreliable entities schedule,” a blacklist carrying punishments for those firms or individuals deemed to be a danger to “national sovereignty, security or development talk inti” of the world’s second-largest economy.