Shares in China’s biggest chipmaker fell more than 7 per cent on Monday in Hong Kong after Washington imposed export restrictions that could cut off Semiconductor Manufacturing International Corporation from crucial US equipment and software.

Washington’s move to curb critical supplies to SMIC further threatens the development of China’s domestic semiconductor industry, after the Trump administration had already cut Huawei off from its chip suppliers. 

Shares in SMIC fell as much as 7.9 per cent in Hong Kong on Monday to their lowest since May 29, while its Shanghai-listed stock dropped as much as 6.6 per cent.

The US Department of Commerce told companies on Friday that exports to SMIC carried an “unacceptable risk” of being diverted to “military end use”, according to a copy of the letter seen by the Financial Times. Companies would now require licenses to sell specific products to SMIC, it added.

The Shanghai-based company, one of China’s national champions, is an important part of Beijing’s push to forge a self-sufficient domestic chip industry. SMIC raised $7.6bn in Shanghai in July — the country’s biggest equity sale in 10 years — as investors bet that government support would help it thrive. 

But analysts say the US ban poses a grave threat to the company.

“SMIC will lose access to US equipment but also potentially equipment from other countries that want to keep the US on their good side,” said Stewart Randall, head of semiconductors at consultancy Intralink in Shanghai.

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SMIC has signed orders worth more than $2bn with the US companies Applied Materials and Lam Research since 2019. The two American businesses were SMIC’s top and third-largest equipment suppliers, respectively, between 2017 and 2019, according to its listing prospectus. 

Its second-largest supplier was Dutch chip tool manufacturer ASML, from which SMIC purchased a cutting-edge EUV lithography machine in 2018. The $150m machine has not yet been shipped partly due to pressure from the US government.

Analysts at Morningstar said it would be difficult for Chinese companies alone to supply SMIC with the equipment it needs to make chips.

“Although Chinese substitutes have emerged in parts of the supply chain, their specifications are typically two to three generations behind,” said Phelix Lee, an analyst at Morningstar.

“More Chinese companies in the supply chain are at risk of being banned” as the Sino-US tech war deepens, Mr Lee added. 

SMIC said in a statement on Sunday that it had not received any formal notification of the order from the US commerce department.

“The company has not received such official information . . . The company has no relationship with the Chinese military and does not manufacture for any military end users or end uses,” it said.

In response to news of the sanctions, Global Times, a state-owned newspaper, called for a new “long march” for the tech industry to “rid itself of being dependent on the US”.

Via Financial Times