The US has further hindered China's ambitions to become technology superpower after it added SMIC to its Entity List last Friday.
The US Commerce Department announced on Friday that China’s top chipmaker Semiconductor Manufacturing International Corporation (SMIC) has been added to a so-called Entity List that bans it from using US suppliers and technology.
Commerce Secretary Wilbur Ross said: "We will not allow advanced US technology to help build the military of an increasingly belligerent adversary." Secretary Ross added that SMIC "perfectly illustrates" the risks of China using US technology to modernize its military.
However, the tech firm denies any relationship with the Chinese military.
In response to the decision, a spokesperson for China’s Ministry of Foreign Affairs accused the US government of "using its state power to suppress Chinese companies."
At a regular press briefing, spokesperson Wang Wenbin said: "We urge the US to stop its wrongful behavior of unreasonably suppressing foreign enterprises. China will continue to take necessary measures to safeguard the legitimate rights and interests of Chinese enterprises."
Prior to the addition
Before its addition to the Entity List, SMIC was first added to a list of "Chinese military companies".
According to the US Department of Defense, the Chinese government was using the expertise of "civilian entities", such as companies and universities, to modernize its military capabilities but SMIC denied any links to the Chinese military.
In October, SMIC issued a warning about the possible impact of new US restrictions on key technology on its operations.
In a filing with the Hong Kong Stock Exchange, SMIC warned that the Commerce Department issued letters to its American suppliers regarding restrictions on dealing with the Chinese firm.
What the addition to the list means
The addition of SMIC to the list would pose serious problems with the firm, as it relies heavily on US software, machinery and other equipment to design and manufacture its semiconductors.
Under new US rules, any request to export tech necessary in the production of super advanced chips "will be subject to a presumption of denial". The commerce department's definition of "super advanced" is any semiconductor smaller than 10 nanometer.
This poses a big problem for SMIC due to its reliance on American-made software and equipment to manufacture its chips.
Currently, SMIC remains behind its competitors and industry leaders Intel, Samsung and Taiwan Semiconductor Manufacturing Company (TSMC) by three to five years. These firms are already capable of manufacturing 7-, 5- and 3-nanometer sizes.
Following the announcement, SMIC shares fell by around 5% in Hong Kong and last week, the stock has lost almost 10%, its worst level since September, when talks about possible restrictions on the Chinese chipmaker made its rounds.
Morningstar equity analyst Phelix Lee said: "We think this is one of many blows to China, limiting its rise as a tech superpower. Although Chinese substitutes have emerged in parts of the supply chain, their specifications are typically two to three generations behind."
In a research note on Sunday, Bernstein analysts wrote that China is expected to bail out SMIC, if necessary, since Chinese President Xi Jinping recently said that the country needs to "strengthen China's strategic tech power" so it can break a "foreign stranglehold" on key tech.
