After being added to a US export control blacklist last Friday, Chinese technology giant, Semiconductor Manufacturing International Corp. (SMIC) said Sunday that the sanctions would likely hamper its development of cutting-edge microchip technologies.

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Why it matters: As China’s largest chipmaking company, SMIC is spearheading President Xi Jinping and China’s campaign to establish a self-sufficient semiconductor industry, after steadily  removing its reliance on American technologies in recent years. 

•  In a statement, SMIC said that an initial assessment shows that “the US move will badly affect the company’s own R&D and production capacity construction of advanced technologies of 10 nanometers (nm) and below,” according to Nikkei

•  However, SMIC also said that the sanctions would not pose a significant negative impact to the company’s operation and finances in the short term, as it is not currently mass-producing chips that use technologies below 10 nm.

•  A press release on the US Commerce Department’s website explained that the Entity List designation would hamper SMIC’s ability to acquire certain US technologies by requiring US exporters to apply for a license to sell to the company.  

•  In addition, unique items required to produce semiconductors at advanced technology nodes — measuring 10 nanometers or below — will be subject to a presumption of denial to “prevent such key enabling technology from supporting China’s military-civil fusion efforts.”

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More details: Regarding the decision, US Commerce Secretary Wilbur Ross said, “We will not allow advanced US technology to help build the military of an increasingly belligerent adversary. SMIC perfectly illustrates the risks of China’s leverage of U.S. technology to support its military modernisation.”

•  SMIC has continuously denied US allegations of its connections to the Chinese military. 

•  Two weeks ago, SMIC defended itself again in a press release after learning of its impending addition to the Entity List, saying “The Company’s services and products are all for civilian and commercial end-uses and are not involved in any military application. The Company strongly opposes the decision of the United States Department of Defence, which reflects a fundamental misunderstanding by the United States Department of Defence regarding the end-uses of the Company’s business and technology.”

•  However, in an additional statement, the Commerce Department further explained that the sanctions were also due to an array of offences committed by China – including human rights abuses, the activities of the Chinese military, and theft of American technology.

Looking ahead: In response to Washington’s efforts, China is planning to provide broad support for so-called third-generation semiconductors in a new five-year plan to increase self-sufficiency in chip manufacturing, Bloomberg reports. SMIC is expected to play a crucial role in that plan. 

•  Chinese Foreign Minister, Wang Yi described Washington’s expansive use of sanctions against Chinese companies as “unacceptable” in a video address to the Asia Society on Friday. He also urged the US to stop “over stretching the notion of national security,” and to cease “the arbitrary suppression of Chinese companies.” 

•  SMIC shares dropped almost 10% after co-CEO, Liang Mong Song quit unexpectedly last week. Liang made the surprise decision to quit after SMIC appointed a vice chairman without consulting him, according to Bloomberg.

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