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Huawei Building a Chip Shadow Network? US Considers Sanctions

Last Updated March 20, 2024 10:55 AM
Giuseppe Ciccomascolo
Last Updated March 20, 2024 10:55 AM

Key Takeaways

  • The US Government is considering further sanctions on Chinese semiconductor companies linked to Huawei.
  • Huawei developed a 7nm chip in China, raising concerns and prompting investigations by the US.
  • The decision on sanctions may depend on the current state of US-China relations and upcoming high-level talks.

The U.S. Government is contemplating the possibility of imposing sanctions on several Chinese semiconductor companies associated with Huawei Technologies. The move may follow the telecom giant’s notable technological achievements last year, according  to sources familiar with the situation.

This potential action signifies a further intensification of the US strategy to contain and limit Beijing’s advancements in artificial intelligence (AI) and semiconductor technology. It represents an escalation in efforts to restrain a key Chinese player that has made significant strides despite previous sanctions. These include the development of a smartphone processor last year. A feat that many in Washington believed to be beyond its capabilities.

Huawei’s 7-nm Chip

In 2019, Huawei was placed on a blacklist , effectively barring it from procuring American technology without special export licenses from the Commerce Department. While these sanctions severely impacted Huawei’s smartphone business for an extended period, the company surprised many by unveiling the Mate 60 device , featuring a 7-nanometer chip manufactured in China. Remarkably, Huawei commenced selling the phone during a visit by Commerce Secretary Gina Raimondo to the country.

The chip, manufactured by Semiconductor Manufacturing International Corp. (SMIC), relied significantly on foreign technology, such as equipment from ASML and supplies from Applied Materials Inc. and Lam Research Corp.

The largest Chinese company for the production of processors, with a strong state participation, has managed to make the heart of the Mate 60 Pro beat with the new Kirin 9000s, a 5G SoC built using the 7nm N+2 production technology that no one he thought it was already ready.

The Kirin 9000s chip of the Mate 60 Pro is made using DUV, Deep Ultra Violet lithographic machines, machines which today are also produced by Nikon and Canon as well as by ASML and on which there is no import restriction.

This reliance on tools obtained before US and Dutch export controls highlights China’s continued dependency on foreign components, despite its efforts to build a self-sufficient semiconductor supply chain.

Companies At Blacklisting Risk

The Bureau of Industry and Security (BIS) has initiated an investigation  into the authenticity of the purported 7-nanometer chip. US Secretary of Commerce, Gina Raimondo, has pledged to take the “strongest possible”  measures to safeguard US national security. Meanwhile, Republican lawmakers have urged the Biden administration to sever all ties between Huawei, SMIC, and US suppliers.

Several Chinese entities potentially facing repercussions were previously highlighted as chip manufacturing facilities either acquired or under construction by Huawei, as revealed in a presentation by the Semiconductor Industry Association, based in Washington. Sources familiar with the matter disclosed that while no definitive decisions have been reached, the deliberations are ongoing.

According  to sources, the list of companies possibly facing blacklisting includes chip manufacturers such as Qingdao Si’En , SwaySure , and Shenzhen Pensun Technology Co., commonly known as PST . Additionally, Biden administration officials are contemplating sanctions against ChangXin Memory Technologies Inc. , a prominent memory chip producer in China.

Chinese firms blacklist
Chinese firms that may be added to US blacklist l Source: Bloomberg News

In addition to chip-producing entities, there’s consideration of imposing sanctions on Shenzhen Pengjin High-Tech Co.  and SiCarrier , companies involved in semiconductor manufacturing equipment. There are concerns that these firms may be serving as intermediaries facilitating Huawei’s access to restricted equipment. Bloomberg News initially reported on the connections between these companies and Huawei in late 2023.

The US government is actively urging allies such as the Netherlands, Germany, South Korea, and Japan to reinforce restrictions on China’s access to semiconductor technology. Huawei stands at the forefront of this initiative. The company represents a focal point in the campaign and Beijing’s broader endeavors to diminish reliance on Western technology.

It’s A U.S. vs China Matter

The Commerce Department, which is responsible for managing the entity list, reportedly lacks additional evidence connecting the implicated companies to Huawei. The US possesses the authority to sanction businesses deemed to pose a future risk to national security. The government doesn’t necessarily require evidence of past harmful or illicit activities.

The White House’s National Security Council and the Commerce Department’s Bureau of Industry and Security declined to provide comments on the matter. Representatives for the Chinese companies in question and the Ministry of Commerce did not respond to requests for comment. While the Ministry of Foreign Affairs reiterated its firm opposition to US actions disrupting market order and harming Chinese enterprises, it refrained from addressing the specific potential moves under consideration.

The timeline for a final decision by US officials remains uncertain, depending on the evolving relations between Washington and Beijing. Treasury Secretary Janet Yellen’s expected visit to China in 2024. Potential discussions between President Joe Biden and Chinese leader Xi Jinping in the spring could influence the timing.

Furthermore, there are additional policy factors to consider. These include the anticipated announcement of a long-awaited adjustment to broad China tariffs initially imposed during the tenure of former President Donald Trump. Officials are also contemplating increasing duties on older-generation chips from China. This is a topic that has gained traction in recent weeks.

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