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US Restrictions Could Hamper China's Plans For A Self-reliant Semiconductor Sector

Export curbs on SMIC could deal a heavy blow to China's pursuit of an independent semiconductor sector Restrictions may also slow company's development of advanced processing nodes

US Restrictions Could Hamper China's Plans For A Self-reliant Semiconductor Sector

The latest US restrictions on Chinese firm Semiconductor Manufacturing International Corporation (SMIC) could deal a heavy blow to China's push for a robust home-grown semiconductor industry, analysts say.

The US government moved to impose the restrictions following a review that concluded the Shanghai-based company's chips might be used by the Chinese military. The US commerce department told SMIC's American suppliers on Friday to apply for a licence to sell technologies to SMIC.

"The inclusion of SMIC into a US trade blacklist would deal a heavy blow to China's plans to develop its domestic semiconductor industry," said Arisa Liu, an industry analyst at the Taiwan Institute of Economic Research.

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"The US is administrating a strategy of blocking key companies to force a shutdown in advanced manufacturing processes."

Stewart Randall, head of electronics and embedded software at consultancy Intralink, said: "It limits any short or medium term capacity expansion plans. Losing support for its current equipment though means they have to work with what they have already, it could be an issue if things start breaking."

SMIC's relationship to the Chinese military has been under US scrutiny, according to a Reuters report in early September.

In a statement on Sunday, SMIC denied any involvement with the Chinese military.

"We reiterate SMIC does not produce for any military end users," a spokesman said, adding that the company had not received information about the US restrictions from any official channel.

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The restrictions come at a time when US-China relations are their lowest point for decades, as a protracted trade war morphed into a tech war.

US restrictions have put Chinese tech giant Huawei in limbo by barring it from sourcing smartphone chips from global foundries using US-origin technologies.

The ban on Huawei galvanised China to strengthen the development of a domestic semiconductor industry, which still trails in crucial technologies and manufacturing.

Founded in 2000 by Richard Chang, who worked for many years at Texas Instruments and Taiwan Semiconductor Manufacturing Co, SMIC is China's flag-bearer of advancing semiconductor processes on the mainland and narrowing gaps between China and the world in the semiconductor industry.

China's market potential is huge for the global semiconductor industry. The country imported more than 300 billion yuan (US$44 billion) worth of chips last year and the market is set to continue to grow with the advent of more affordable consumer electronics from Chinese brands.

SMIC announced plans in July to build a US$7.6 billion foundry in Beijing, focusing on the 28nm process and more ­advanced nodes, with the aim of producing about 100,000 12-inch wafers per month, following its 46.3 billion yuan IPO on the tech-heavy Science and Technology Innovation Board, better known as the Star market.

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Liu said the company made much of its revenue from its mature 65nm and above processing nodes in 2020, with more advanced 28nm and 14nm nodes contributing just 6.5 per cent and 1.3 per cent of revenue respectively in the first quarter.

"SMIC's 28nm process expansion plan could be slowed, the same goes for its 10nm slated for production in volume in 2021," said Eric Tseng, chief executive of Taiwan-based semiconductor research firm Isaiah Capital & Research.

Gu Wenjun, chief analyst at Shanghai-based semiconductor research firm Icwise, was less pessimistic.

"More details of the restrictions would be needed to appraise the impact on SMIC, but its production and operations are as normal currently," he said.

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