The Biden administration is increasing pressure on China’s main sanctioned chipmaker by blocking its most advanced factory from receiving more American imports. This move comes after the factory produced an advanced chip for Huawei’s Mate 60 Pro phone, according to three individuals familiar with the situation.
In the latter part of last year, the Commerce Department sent numerous letters to U.S. suppliers of Semiconductor Manufacturing International Corp (SMIC), informing them that the government will no longer allow them to sell to its most advanced plant. U.S took this action due to concerns the sophisticated Huawei chip, as disclosed by two anonymous sources who are not authorized to speak publicly on the matter.
U.S Ceases Entegris from Shipping to SMIC 
Many companies had previously ceased selling to SMIC South, as indicated by the letters. The correspondence has now halted the delivery of chipmaking materials and parts worth millions of dollars from at least one supplier, Entegris, according to an insider.
It’s important to note that there is no evidence suggesting that Entegris violated any U.S. laws or regulations. The company’s shares fell by 1.9 percent on Wednesday. Entegris stated that it had made the shipments following a valid export license but ceased them after receiving letters from the Commerce Department, which suspended permission to send products to SMIC South.
The Massachusetts-based company, specializing in filters, gases, chemicals, and products for handling wafers, the fundamental components for chip manufacturing, stated that it closely monitors and complies with the “rapidly evolving regulatory requirements” concerning international trade impacting the chip industry.
SMIC did not respond to a request for comment. Meanwhile, Huawei, the White House, and the Commerce Department have declined to provide comments on the matter.
Chinese Embassy in New York Criticizes Suspension 
A spokesperson for the Chinese embassy in Washington criticized the license suspensions as “out-and-out economic bullying” and warned that it would backfire. The spokesperson urged the U.S. to refrain from stretching the concept of national security and using state power to suppress Chinese companies.
The license suspensions by the Commerce Department, initially reported by Reuters, indicate that the Biden administration is taking action against SMIC. This move comes amid increasing pressure from Republican China hawks to limit the transfer of U.S. technology to the company and undermine its capacity to produce advanced chips.
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The pressure on SMIC has been mounting since August, following the revelation that the sanctioned Chinese telecoms giant, Huawei, introduced a new phone featuring a sophisticated chip. The Huawei Mate 60 Pro was seen as a symbol of China’s technological resurgence, despite ongoing efforts by Washington to cripple its capability to produce advanced semiconductors. The Biden administration conducted a review to understand the specifics of the chip powering the phone, which we believe to be the most advanced semiconductor that China has produced to date.
However, critics argue that the recent letters from the Commerce Department do not go far enough. Republican Congressman Michael McCaul, chair of the Foreign Affairs Committee, expressed dissatisfaction, stating that the Commerce Department should have taken action sooner. He accused the agency of negligent work, raising doubts about its ability to fulfill its national security mission. The Commerce Department declined to comment on McCaul’s allegations of negligence.
U.S to Increase Restrictions on Huawei and SMIC
The United States has been gradually restricting SMIC and Huawei’s access to advanced U.S. technology. Huawei faced trade restrictions in 2019 for alleged sanctions violations, and SMIC found itself on the same list in 2020 over alleged ties to the Chinese military industrial complex. Both companies have denied any wrongdoing.
While being on the trade restrictions list usually prohibits U.S. companies from selling to these firms, certain items could still ship to Huawei and SMIC under the Trump administration. The Biden administration introduced new rules in October 2022, effectively barring U.S. suppliers from sending semiconductor tools and materials to advanced Chinese-run chipmaking facilities, including SMIC South. However, companies with preexisting licenses had the chance to continue supplying the facility.
Entegris shipped chipmaking parts and materials to SMIC South between October 2022 and the end of last year. China accounted for 16% of Entegris’ net sales in fiscal 2023, but recent U.S. export regulations have impacted its ability to sell products in China.
Experts suggest that SMIC South could turn to alternative sources in China, Taiwan, Japan, and Korea for most chemicals and parts used in chipmaking. However, a sudden cut-off from the U.S. supply chain could potentially interrupt production for 3 to 9 months, depending on inventories. SMIC South seems to be the only facility capable of producing the Mate 60’s 7 nanometer chip.
