Huawei future looks dark, China chip dream at risk|US weighs export control on China top chipmaker

Semiconductor Manufacturing International Corporation, or SMIC, is China's largest semiconductor manufacturer and the fifth largest in the world. China's State Council on August 4 announced its latest semiconductor policy, which includes a plan for China to reach 70 percent self-sufficiency in chips by 2025. This is part of China's latest drive to compete in the technology sector. But the plan has dealt a major blow when the Trump administration announced that they are considering blacklisting SMIC on September 5. Following the news, SMIC's Hong Kong share price plunged 22.9% on September 7, down 23.6% during the session.

Why does the US suddenly intend to take action against SMIC? The Wall Street Journal stated that a report by a U.S. defense contractor has alerted the U.S. government to the fact that SMIC is suspected of supporting the build-up of the Chinese Communist Party's military.

Huawei is SMIC's largest customer, with 18.7% of its revenue coming from Huawei.

China has long relied on imports for its chips. Market research firm IC Insights noted that China's semiconductor self-manufacturing rate was about 15.7% in 2019, up only slightly from 15.1% in 2014.

In August, Chinese Foreign Minister Wang Yi visited the Netherlands in anticipation of the release of the ASML EUV lithography system, but the request was not met. While Wang addressed the issue of lithography exports, the Dutch Prime Minister and Foreign Minister expressed concern over the "Hong Kong version of the National Security Law" and human rights issues in China, including religious freedom.

The Wall Street Journal reported that SMIC's customers are mainly Chinese enterprises, with nearly 60% of its $3.1 billion USD revenue in 2019 coming from Chinese companies. An industry professional's analysis pointed out that SMIC's ban is not just a problem for ZTE and Huawei, but will impact the chip manufacturing needs of other Chinese semiconductor companies, which could seriously result in the nationwide chip shortage.

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