The Threat of Chinese Semiconductor Manufacturing Equipment Companies: SMIC

As we explored last week and in Roslyn Layton’s recent study on the state of the semiconductor industry, China is moving rapidly to undermine the US semiconductor industry.  China is attempting to build its own semiconductor supply chain in the race to develop 5G.  One key piece of that supply chain are semiconductor manufacturing equipment companies.  China has a vision of building these out as part of its Made in China 2025 initiative.

The United States can slow China’s semiconductor ambitions by blocking SME companies from working within the Chinese supply chain.  In our next few blog posts, we will examine three companies in particular – Semiconductor Manufacturing International Corporation (SMIC), Yangtze Memory Technologies (YMTC), and ChangXin Memory Technologies (CXMT).

First, SMIC.  As Roslyn Layton outlined in her paper:

“James Mulvenon is author of three books on the intersection of the PRC’s military, intelligence, and commerce. In a widely covered report provided to federal officials, Mulvenon and his SOSI colleagues determined that Semiconductor Manufacturing International Corporation – the largest and most sophisticated Chinese government-owned semiconductor maker – has multiple close ties the People’s Liberation Army (PLA). The United States Department of Commerce through its Bureau of Industry and Security took action on September 25th requiring US businesses to obtain licenses before exporting certain technology to SMIC. Specifically, PLA researchers use SMIC chips and processes, indicating it is tailored for their purposes. For example, radiation hardening – which is used military and space purposes – employ a SMIC process design kit. Furthermore, the Pentagon identifies SMIC’s key customer CETC Electronic Equipment Group as a “Communist Chinese military company.””

The good news is that the United States appears to be moving quickly with regard to SMIC.  In late September, the US Department of Commerce outlined a plan to require suppliers for SMIC to apply for an export license.  It appears that SMIC is already feeling pressure from the move.  However, Commerce should consider expanding its scope to include additional SME companies.