Trump administration hits out at Chinese chipmaker over security

Washington/Beijing |The Trump administration has slapped heavy restrictions on US companies working with Chinese semiconductor company Fujian Jinhua, citing “national security”, adding a new front in the trade war between Washington and Beijing.

The move by the US commerce department, announced on Monday (Tuesday AEDT), was the latest sign of US anxiety over China’s development of sensitive technologies as the stand-off between the countries drags on.

US officials are demanding that China abandon practices such as forced technology transfer and the theft of intellectual property in exchange for lifting tariffs on $250b of Chinese imports this year. But there have been no signs of a breakthrough ahead of a meeting in late-November between Xi Jinping, the Chinese president, and Donald Trump, his US counterpart, on the sidelines of the G20 meeting in Argentina.

In a statement, the US commerce department said Fujian Jinhua was “nearing completion of substantial production capacity for dynamic random-access memory (DRAM) integrated circuits”. It added that “the additional production” — which probably derived from “US origin technology” — threatened the “economic viability” of suppliers to the US military.

“When a foreign company engages in activity contrary to our national security interests, we will take strong action to protect our national security,” said Wilbur Ross, the US commerce secretary.

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Fujian Jinhua was placed on the “entity list” of America’s export administration regulations, meaning that a licence would be required for all “exports, re-exports, and transfers of commodities, software and technology” to the Chinese company. Applications would be “reviewed with a presumption of denial”, the commerce department added.

Fujian Jinhua did not reply to a request for comment.

The decision echoes a move earlier this year to restrict exports to ZTE, a Chinese telecommunications equipment company, and highlights how national security concerns about China are spilling over into the trade dispute. That is complicating the path to any agreement between Mr Xi and Mr Trump in the coming months — a prospect that is already weighed down by low expectations.

The US has imposed tariffs on about half of Chinese imports but Mr Trump has threatened to raise the rate of most of the levies from 10 to 25 per cent in January. He has also said he could slap tariffs on a further $267bn of goods.

The commerce department action against Fujian Jinhua comes as the Chinese group has been locked in a legal dispute with Micron, the US chipmaker that accused it of stealing its technology. US companies and officials have long frowned on China’s drive towards “indigenous innovation”, or Beijing’s efforts to build its own technology powerhouses that could compete with established Silicon Valley companies.

Chinese chip manufacturers have received billions in state subsidies under the Made in China 2025 programme, an initiative that aims to make the country a global leader in key technological industries ranging from electronic vehicles to robotics. Beijing has mobilised massive venture capital funds to incubate domestic champions in these strategic sectors, including a Rmb139b ($20b) state-managed fund specifically targeted towards the semiconductor sector.

Fujian Jinhua’s backers include the Fujianese provincial government, which helped the company drastically expand its factories in the south-east coast of China. The company was founded by a Fujian state-owned enterprise specialising in electronics, and specialises in DRAM, a type of memory chip common in phones and computers that allows devices to quickly access bits of stored information.

The company is building a $5.7b microchip factory in Jinjiang, a city in eastern Fujian province once known for its shoe manufacturers, that will be the largest such facility in China. The first phase of the factory came online in September and is designed to produce $1.6b worth of memory chips a year, according to state media.

“The company regards it as its duty to realise the domestic manufacturing of integrated circuit chips,” Fujian Jinhua wrote on its company website, with managers telling state media that they were looking to sell their chips to domestic mobile phone manufacturers.

Criticism from foreign businesses and governments over the use of such state subsidies has led China to adjust its approach in recent months, amid a growing global pushback against state-backed companies. After a reversal by the US administration and a new settlement, the export restrictions were lifted on ZTE.