Trump Administration Adds China’s Biggest Chip Maker To Trade Blacklist For Alleged Military Ties

Topline

The U.S. Department of Defense added China’s biggest chipmaker, SMIC and major oil firm CNOOC to a trade blacklist due to their alleged ties to the country’s military, continuing the outgoing Trump administration’s crackdown on Chinese firms.

Key Facts

Late on Thursday, the Department of Defense announced a total of four additions to its blacklist also including China Construction Technology Co Ltd and China International Engineering Consulting Corp.

SMIC, which is China’s biggest semiconductor maker, relies heavily on equipment and software from U.S. suppliers to design and manufacture its chips.

In a stock exchange filing on Friday the Chinese chipmaker said that it was aware of the action and was still evaluating the potential fallout.

Crucial Quote

In a Wall Street Journal op-ed published on Thursday, outgoing Director of National Intelligence John Ratcliffe claimed that China poses “the greatest threat to America today, and the greatest threat to democracy and freedom world-wide since World War II.” He alleged that many of China’s major companies and initiatives are only a “layer of camouflage to the activities of the Chinese Communist Party.” He added, “China robs U.S. companies of their intellectual property, replicates the technology and then replaces the U.S. firms in the global marketplace.”

Chief Critic

The blacklistings drew strong condemnation from Beijing and China’s foreign ministry spokeswoman, Hua Chunying, who warned that the move will severely harm the U.S.’ interest and image, according to Reuters.

Tangent

In September, the Commerce Department informed some of SMIC’s U.S. suppliers that they needed to obtain a license before supplying goods and services to the chipmaker after coming to the conclusion that there was an “unacceptable risk” any such supplies could be used for military purposes.

Key Background

Last month, President Donald Trump signed an executive order that prohibits any U.S. person from holding securities, directly or through funds, in companies deemed to have links to China’s military. Investors who already hold such assets will have until November 2021 to divest them. In his executive order, Trump accused China of increasingly exploiting U.S. capital to fund the development and modernization of its military, which in turn allows it to threaten the United States. Reuters notes that the growing set of measures against China is being seen as an attempt by the Trump administration to cement its tough-on-China policies and box President-elect Joe Biden “into hardline positions on Beijing amid bipartisan anti-China sentiment in Congress.” Meanwhile, Biden told the New York Times this week that he would not immediately roll back tariffs imposed on China by the Trump administration.

Big Number

4%. That’s the total percentage of SMIC’s outstanding shares owned by top U.S. asset managers Vanguard Group and BlackRock, according to Reuters. Other U.S. funds such as Invesco and Fidelity also hold sizable shares in the company, Nikkei reported.

Further Reading

United States adds China’s SMIC and CNOOC to Defense blacklist (Reuters)

US blacklists top China chipmaker SMIC and oil giant CNOOC (Nikkei Asia)

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