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A US ban on US companies dealing with a Chinese chip maker accused of stealing technological secrets would threaten a $ 5.7 billion publicly-funded enterprise, undermining China to build a world-class semiconductor industry.
Fujian Jinhua Integrated Circuit Co., founded in 2016, has built a factory to end China's dependence on foreign semiconductors and has been designated by Beijing as a key player in the last phase of its three-decade program to develop globally competitive chip makers. Jinhua, which employs more than 1,000 people, aimed to begin mass production of memory chips used in smartphones and USB drives by the end of the year, with the aim of reducing by half the number of semiconductor imports by 2020.
According to analysts, these plans will probably stop because Jinhua depends on a set of US suppliers who provide design and engineering components.
The US Department of Commerce banned Monday exports and technology transfer of US origin in Jinhua, accused by a newspaper based in Idaho.
Micron Technology
Inc.
MU 1.11%
to steal design secrets – without official permission. US efforts to contain China's technological breakthrough are part of a broader trade fight between the world's two largest economies, focused primarily on tariffs.
The ban was different from a similar ban against the Chinese telecom giant
ZTE
Corp.
imposed earlier this year, in that the Commerce Department reported national and economic security concerns in the case of Jinhua. The sentence imposed on ZTE, which was later overturned after President Trump's intervention, was imposed for violating the terms of an agreement on non-compliant sales in Iran and North Korea.
"What the US is doing now could extend to anything that is considered high-end technology that the US no longer wants to have in China," said Alicia Garcia Herrero, an economist specializing in China to the French investment bank
Natixis
.
"This case is very different from ZTE."
The restrictions on Jinhua on Monday follow the stricter restrictions imposed by the United States on Chinese investment in US technology companies. In response, China delayed approval of the agreements, which led in July to
Qualcomm
Inc.
canceling his $ 44 billion purchase from a Dutch chip maker
NXP Semiconductors
NV.
The Chinese Foreign Ministry said on Tuesday that Chinese companies must comply with the law, but "we also require foreign governments to provide fair and equitable treatment to our businesses." Jinhua, whose shareholders include a handful of companies owned or controlled by the Fujian Provincial Government, has not responded to calls seeking comment.
Jinhua is part of the trio of state-supported Chinese semiconductor companies that Beijing is seeking to increase its production for the memory market, including Tsinghua Unigroup Ltd. and Innotron Memory Co. Jinhua indicates on its website that she was inducted into the model of the semiconductor industry China's five-year plan, which began in 2016, is a roadmap national development closely associated with the ascendancy of President Xi Jinping.
As part of its efforts to develop national chips, China will invest $ 150 billion over the next ten years starting in 2017 to support its chip industry and develop more sophisticated know-how that will propel it into the value chain. . In smartphones, for example, Chinese brands account for about 50% of global exports, but 90% of its semiconductor needs are still imported. Beijing spent $ 260 billion in chip imports last year.
Jinhua has focused its efforts on the development of DRAM for the consumer electronics markets. Jinhua executives attending the Silicon Valley recruiting fairs late last year announced planning for a pilot test at the end of 2017 and serial production a year later, according to the Micron file. Micron declined to comment. The company began production in September, but does not operate at the planned capacity, according to a person familiar with the subject.
Micron Technology sued Jinhua in California in December, as well as the Taiwanese partner of the Chinese company
United Microelectronics
Corp.
, alleging that they had stolen the talent and trade secrets of Micron. Jinhua disputes the complaint and the case continues.
In July, a Chinese court sided with Jinhua in a lawsuit in retaliation against Chinese company against Micron, accusing it of violating Jinhua's patents and preventing Micron from selling in China. Micron challenged the charges. UMC said Tuesday that the new brake in Jinhua would not affect its operations and that it did not export products to Jinhua.
The Commerce Department's ban is going to hurt Jinhua because the company is probably counting on a handful of California companies that dominate the global microtechnology supply that stacks, connects, cleans and measures wafers used in chip making. Among them are
Applied materials
Inc.
Search Lam
Corp.
, and
KLA-Tencor
Corp.
, according to analysts.
"This is critical for China's semiconductor ambitions," said Mark Newman, a semiconductor analyst at Bernstein Research. "It is unlikely that they are able to build without using" these companies.
According to FactSet, China accounted for approximately 18% of Applied Materials' sales through October 2017 and 16% for Lam Research and KLA-Tencor until June. US companies did not immediately respond to requests for comments made outside of office hours.
The Chinese semiconductor industry remains on the alert, considering that its fate is largely subject to a growing stalemate in the Sino-US clash.
"The US government's decision is a sign that the United States is ready to play the game of trade war," said Wang Yanhui, general secretary of the Mobile China Alliance, consortium of the telecommunications industry.
-Yang Jie, Jeremy Page and Yifan Wang contributed to this article.
Write to Chuin-Wei Yap at [email protected] and Yoko Kubota at [email protected]
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