U.S. Ready to Double Down on Huawei, Why Not SMIC?

The Biden administration is reportedly considering cutting Huawei, a well-known Chinese telecom giant with “inextricable ties to the Chinese Communist Party (CCP),” off from American suppliers, including the likes of Intel and Qualcomm. As a precursor, the Commerce Department is said to have told some American companies it will no longer issue licenses for U.S. tech exports to the CCP-backed company.

At the end of last year, Huawei declared “business as usual” despite U.S. export controls and is believed to be backing projects in China for an “import-independent semiconductor supply chain.”

Martijn Rasser, a technology expert at CNAS, described the Biden administration’s action on Huawei as a “really significant move.” He added, “The actions by the Commerce Department are partly driven by the fact that Huawei as a company is a very different animal than it was four years ago when it was focused on 5G.”

The idea that Huawei is “a very different animal” shouldn’t come as a surprise. CCP-backed companies are known to reinvent themselves and take other actions to skirt our policies to keep driving China’s ambitions for tech dominance. In fact, as it relates to semiconductors, Sen. Bill Hagerty called out a potential partnership between Huawei and SMIC a year ago, and said:

“The Chinese Communist Party considers SMIC to be one of China’s ‘national champion’ companies. SMIC’s got very close ties to the Chinese military. Moreover, SMIC and Huawei reportedly may be teaming up to build a $10 billion chip manufacturing facility. Other federal departments have noted that companies continue to export important U.S. technologies to SMIC, because the entities list restrictions on SMIC are phrased too narrowly.”

This potential partnership should set off alarm bells. In a similar vein, Keith Krach, a former Under Secretary of Commerce, recently told EE Times:

“SMIC and YMTC are among dozens of Chinese companies, along with thousands of subsidiaries, that post serious national security threats to the U.S. because they are building semiconductors for their military. They certainly warrant further restrictions.”

If the Biden administration is ready to take more action as it relates to Huawei, will the same soon follow for SMIC? What about CXMT, another Chinese chip bellwether, and one that seems to fly under the radar compared to SMIC and YMTC? Like Huawei, SMIC is Entity Listed, but the current restrictions clearly aren’t enough. Even with a potential partnership with Huawei aside, SMIC just had a banner year and is doubling down on the production of mature chips. This shows a strategic misstep on the part of the U.S. government to focus restrictions on leading edge chips – leaving the door open for companies like SMIC to redirect its focus and keep its quest for market dominance in sight.

The U.S. government must be vigilant. It can’t take action, declare victory, and move on with companies like Huawei and SMIC. Loopholes and reinvention allow them to game the system. We have to be ready to take further action and employ a whole-of-government approach – using more tools at our disposal – to make more of a difference.