Three Approaches to SME Companies: Supporting the Balanced Approach

In the past weeks we have covered the concerning rise of China’s semiconductor industry and the risks it could pose to U.S. national security.  We focused specifically on three semiconductor manufacturing equipment companies – namely, SMIC, YMTC, and CXMT – that have ties to the Chinese military.  The question then is how can the United Sates act to curtail these companies and protect national security interests.

In Dr. Roslyn Layton’s recent analysis, she outlined three broad categories of responses the United States could take.  The first she described as a “No Restrictions” approach in which there would be no changes to export control policy with regard to companies that work within the Chinese semiconductor supply chain.  The second is one she calls a “Balanced Approach” that would optimize both economic and security by targeting specific SME companies that have ties to the Chinese military.  Finally, the third category is labelled “Technology Decoupling” which would seek to either partially or completely halt the sale of semiconductors and its technology to China.

Dr. Layton concludes about the Balanced Approach:

  • “The Balanced Approach seems the most practical and realistic, and indeed, affords the most flexibility to adapt strategy should facts change in the future. For example, Entity List designation for SMIC, YMTC, CXMT, and others can be applied for limited periods of time and extended as needed. On the other hand, if US technology becomes embedded across PRC semiconductor factories as allowed by the No Restrictions policy, it is essentially impossible to remove the SME in future.
  • Given increasingly militarization by the PRC, there is urgency to limit sales of SME to PRC companies today, notably SMIC, YMTC, and CXMT, among others. Acting quickly can also reduce economic harm to US firms. Indeed, the amount of US SME sold to the PRC is limited today, so an Entity List designation has limited impact on US balance sheets.”

In our next post, we will at how the Department of Commerce can move to help implement this Balanced Approach.