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US-China tensions

US blacklists Chinese chip king SMIC and drone champion DJI

American tech won't be allowed to help Beijing's 'destabilizing military activities:' Ross

An operator flies a drone as Chinese maker DJI holds a demonstration to display an app that tracks a drone's registration and owner in Montreal, Canada.   © Reuters

TAIPEI -- Semiconductor Manufacturing International Co. and DJI, two of China's top tech companies, have been added to a U.S. export control blacklist in a move that ratchets up tension over tech between the Trump administration and Beijing.

Friday's decision by the Commerce Department to add the duo to the so-called Entity List will require U.S. exporters to apply for a license to sell to the companies, thus restricting their access to American technology.

SMIC is a key champion of China's efforts to boost its chipmaking capability, while DJI is the world's largest consumer drone maker.

The department specified that equipment or materials that could be used to produce advanced semiconductors -- 10 nanometers or below -- will be subject to a "presumption of denial to prevent such key technology from supporting China's military-civil fusion efforts."

SMIC is currently developing 10 nm technology, the most advanced achieved by a Chinese homegrown chipmaker.

The restriction will deal a blow to China's efforts to develop a homegrown semiconductor sector. Chinese chip development still requires equipment and materials from U.S. suppliers.

People visit a Chinese chipmaker SMIC's booth at the China International Semiconductor Expo in Shanghai in October.   © Reuters

"We will not allow advanced U.S. technology to help build the military of an increasingly belligerent adversary," Commerce Secretary Wilbur Ross said. "SMIC perfectly illustrates the risks of China's leverage of U.S. technology to support its military modernization."

The decision to add SMIC and DJI to the Entity List in effect formalizes a decision by the Commerce Department in September, when it required American suppliers to apply for licenses before providing technology to the company. The measure cited the "unprecedented risk" posed by SMIC's alleged military links.

Earlier this month SMIC was also placed on a U.S. Defense Department blacklist -- a move to restrict the ability of Americans to invest in the company, whose shares are listed in Hong Kong and on the technology-focused STAR market in Shanghai.

Ross added on Friday: "Entity List restrictions are a necessary measure to ensure that China, through its national champion SMIC, is not able to leverage U.S. technologies to enable indigenous advanced technology levels to support its destabilizing military activities."

China is stepping up efforts to support its emerging chip industry, which is viewed as critical to national security. On Thursday, Beijing rolled out a new set of tax incentives for chip-related companies -- from design and manufacturing to testing and assembly -- lasting up to 10 years.

China's Ministry of Foreign Affairs spokesperson Wang Wenbin said Friday's action by Washington was the latest example of the U.S. abusing its power to suppress a Chinese company and said China was strongly against the move.

"The U.S. should stop its irrational acts to suppress foreign enterprises," Wang said. "China will take proper measures to defend Chinese companies' rights."

The Commerce Department said that besides SMIC, it will add 60 other Chinese entities to the Entity List for actions deemed contrary to the national security or foreign policy interests of the U.S.

These include top Chinese civilian drone maker DJI, parts of state-owned China State Shipbuilding Corp. and research institutions such as Beijing Institute of Technology, Nanjing University of Aeronautics and Astronautics and Tianjin University.

The Commerce Department accused the newly blacklisted entities of enabling human rights abuses, supporting Chinese militarization and unlawful maritime claims in the South China Sea, acquiring U.S. items in support of the People's Liberation Army and stealing U.S. trade secrets.

On Tuesday, SMIC announced that Chiang Shang-yi, a prominent industry veteran and former senior executive with Taiwan Semiconductor Manufacturing Co., the world's biggest contract chipmaker, would join and become its vice chairman.

The new appointment sparked turmoil at SMIC, however, as current co-CEO Liang Mong-song reportedly quit unexpectedly the following day.

Additional reporting by Alex Fang in New York.

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