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Trade war

China's dream of chip self-sufficiency dented by US ban

Tech export restrictions on Fujian Jinhua expected to paralyze production

U.S. chipmaker Micron Technology is suing Fujian Jinhua Integrated Circuit, to which the Trump administration just barred exports, on charges of stealing corporate secrets.   © Reuters

WASHINGTON/PALO ALTO, U.S./BEIJING -- The U.S. slapped an export ban, effective Tuesday, on a Chinese chipmaker accused of stealing American technology, as the Trump administration intensifies pressure against Beijing's drive to make its own semiconductors.

The Department of Commerce moved on Monday to restrict exports to state-backed Fujian Jinhua Integrated Circuit, a maker of dynamic random access memory also known as JHICC. This will make it difficult for the company to procure semiconductor manufacturing equipment from companies like Applied Materials, Lam Research and KLA-Tencor.

JHICC will probably be unable to fabricate semiconductors without American-made manufacturing equipment, said Robert Maire, president of consultancy Semiconductor Advisers. He added that while the company may seek to replace some devices from companies in Japan or elsewhere, restoring all production processes will be a challenge.

The U.S. Commerce Department said the Chinese company "poses a significant risk" of becoming involved in activities that are contrary to U.S. national security. It also said the viability of American companies that supply components for military systems will be threatened should JHICC increase DRAM production, which probably uses U.S.-origin technology.

The underlying reason for the ban, however, is concern over Beijing's high-tech industrial policy. The office of the U.S. Trade Representative said in a March report that China used a variety of methods -- such as industrial espionage, cyberattacks and forced technology transfers -- to steal intellectual property from American companies. This led to the introduction of tariffs by the U.S.

JHICC is one such company Washington had in mind. U.S. chipmaker Micron Technology filed a lawsuit in California last year against the Fujian-based chipmaker and its Taiwanese partner United Microelectronics Corp. for stealing technology.

But UMC filed a countersuit against Micron in China this January. A Chinese court then temporarily barred the American company's chip sales in July. Tuesday's move is seen by some as retaliation by the U.S. in what is shaping up as the groundwork for an intellectual property war.

The Trump administration has taken issue with Beijing's "Made in China 2025" strategy, announced in 2015, to achieve dominance in high-tech fields. JHICC was founded in 2016 with funds from a Fujian Province-backed company to achieve self-reliance in semiconductor production, a centerpiece of that plan. The chipmaker has been touted as China's answer to Samsung Electronics, SK Hynix and Micron.

JHICC has invested 37 billion yuan ($5.31 billion at current rates) to build a DRAM plant for products like home electronics based on UMC technology. Trial production is slated to begin this fall. The U.S. ban could delay its schedule for mass production, although the company's progress is unknown.

Other Chinese chipmakers may face similar restrictions, Maire said. Such measures will be aimed at picking off potential rivals early before they ramp up DRAM production.

Telecommunications equipment maker ZTE, another pillar of Made in China 2025, was forced to suspend operations after the U.S. barred American supplies from doing business with it in April.

U.S. lawmakers on both sides of the aisle are wary of China. Congress passed legislation with bipartisan support in August that broadens the jurisdiction of the Committee on Foreign Investment in the U.S., which reviews mergers and acquisitions from a security standpoint.

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