The U.S. Department of Defense said that there were reports of SMIC’s alleged involvement with the Chinese military and further passing on their chip technology for China’s defense purposes.

The United States continues to tighten its grip over Chinese tech companies. After issuing a ban on TikTok, the U.S. is looking ahead to put export restrictions to China’s biggest contract chipmaker – Semiconductor Manufacturing International Corporation (SMIC).

On Monday, the SMIC stock price crashed 23% on news of a possible U.S. ban. The SMIC shares were trading at 18 HK Dollars at the Hong Kong Stock Exchange. Similarly, its share price on the Shanghai exchange was also down 11.29%. With the escalating tensions between the two top economies, the U.S. Department of Defense is having discussions with SMIC whether or not to add it to the Commerce Department’s Entity List. Speaking to CNBC, a spokesperson from the Depart of Defense said:

“DoD is currently working with the interagency in assessing available information to determine if SMIC’s actions warrant adding them to the Department of Commerce’s Entity List. Such an action would ensure that all exports to SMIC would undergo a more comprehensive review.”

This comes as part of U.S’s continued efforts to put pressure on China’s technology companies. This would further escalate the technology war between the two giant economies. China has been giving a major push to its domestic semiconductor industry.

While SMIC has come this far, it is much behind chip-making giants like Samsung Electronics Co Ltd (KRX: 005930) and Taiwan’s TMSC. Besides, SMIC also heavily relies on American equipment for chipmaking. Thus, any sort of ban would further hurt the company’s operations.

SMIC’s Alleged Involvement With Chinese Military

The U.S. has continuously alleged that the Chinese tech companies have been sending their citizens data to the Chinese Communist Party and its military. With SMIC, the U.S. Department of Defense is looking if the company provides chips to China’s military and its defense systems.

Based on the report of the DoD, the Wall Street Journal reported that SMIC has been working with the Chinese Defense company. Also, university researchers working closely with the military have found SMIC’s chips suitable. Denying any such involvement with the Chinese military, SMIC posted a statement on Saturday stating:

“Any assumptions of the Company’s ties with the Chinese military are untrue statements and false accusations. The Company is in complete shock and perplexity to the news. Any assumptions of the Company’s ties with the Chinese military are untrue statements and false accusations. Nevertheless, SMIC is open to sincere and transparent communication with the U.S. Government agencies in hope of resolving potential misunderstandings.”

It also remains to be seen how the U.S. DoD comes further with its report. Moreover, this big decision from the U.S. can escalate things to a new level.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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