US seeks to close loophole allowing SMIC access to American chipmaking tech

According to a Wall Street Journal report, US officials are considering a Defence Department proposal that would close regulatory loopholes that have allowed Chinese chipmaker SMIC to continue to purchase critical technology of US origins.

The report, which cited people familiar with the matter, said the proposal is being opposed by officials from the Commerce Department.

Semiconductor Manufacturing International Corp (SMIC) is a Shanghai-based, partly state-owned contract chipmaker, and China’s largest. It was added to the US 'Entity List' blacklist in December 2020, restricting its access to manufacturing equipment from US suppliers due to alleged ties to China’s military. It rejects these claims.

According to people familiar with the matter, its addition to the Entity List has proven ineffective at preventing it accessing important US technology. Under the current designation, SMIC is restricted from buying US technology “uniquely required” to build chips with 10nm circuits and smaller, which is near the leading edge of semiconductor manufacturing technology.

However, as many technologies can be used to produce semiconductors of varying size, exporters argued that they could still sell technology that could be adjusted to produce 10nm chips. A source told the Wall Street Journal that this meant the restriction became “effectively language that means nothing”.

The Defence Department wishes to change the wording to specify that technology “capable of” producing chips with 14nm circuits and smaller is not permitted, expanding the array of technology that SMIC can access. The Defence Department is reportedly supported by officials at the State Department, Energy Department, and National Security Council.

The same Wall Street Journal report said that US officials are considering adding more Chinese technology companies to the Entity List in coming months and also to the Treasury blacklist banning US investment. While officials and many agencies are pushing for a tougher stance on China, the report said leaders at the Commerce Department remain opposed to some of the plans due to the potential impact on US companies.

The report said that officials in the department, along with US toolmakers, have told the government that closing the loophole would hurt US companies’ bottom lines and worsen the global chip shortage that is causing widespread disruption.

According to the Financial Times, US officials have imposed a ban on US investment in SenseTime Group, which is planning an IPO on the Hong Kong stock exchange later this month. The Hong Kong-based company is the world’s largest facial-recognition company. The company, or rather, its Beijing subsidiary, was added to the Entity List in 2019 over alleged use of its technology in the mass detention of the Uyghur minority ethnic group in Xinjiang.

A tough stance against China is one of few Trump administration policies retained by the Biden administration. President Biden has identified technology as a key frontier in the US-China rivalry, and hopes to pump tens of billions of dollars into the domestic design and manufacture of critical technologies, in order to establish tech supply chains independent of China.

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