China’s Top Chipmaker Appears to Have Violated Sanctions, US Congressman Says

(Bloomberg) -- China’s top chipmaker, Semiconductor Manufacturing International Corp., warrants investigation as the company appears to have violated US sanctions by supplying components to Huawei Technologies Co., US lawmakers said. 

“It sure looks like it did” violate sanctions, Representative Michael McCaul said Wednesday at a briefing at the US embassy in the Hague. SMIC continues “to try to get our intellectual property.” 

Huawei uses an advanced 7-nanometer processor built by SMIC to power its latest smartphone, a teardown commissioned by Bloomberg News showed, indicating that China is making headway in its push to produce cutting-edge semiconductors despite US sanctions. SMIC’s shares slid as much as 7.4% in Hong Kong, its biggest fall in more than three months. Its Shanghai stock dived as much as 8.6%.

Existing rules require any company that intends to supply Huawei with US technology, which is present throughout SMIC’s operations, to get approval from Washington. It’s unclear whether SMIC has a US license to supply Huawei.

McCaul, Republican chairman of the House Foreign Affairs Committee, has been vocal in protesting what he considers insufficient enforcement of the Entity List, which is enforced by the Commerce Department’s Bureau of Industry and Security and specifies license requirements imposed on restricted exports. Neither McCaul nor his committee have much direct sway over sanctions.

Representative Mike Gallagher, chairman of the House Select Committee on Competition with China, picked up on the theme, suggesting the US should end all its exports to both Huawei and SMIC — even those involving older technology that are currently allowed under the law.

“The time has come to end all U.S. technology exports to both Huawei and SMIC to make clear any firm that flouts US law and undermines our national security will be cut off from our technology,” Gallagher said in a statement.

Although Congress can call officials from the BIS to Capitol Hill to explain export control policy, officials across administrations have shared information on potential new controls only sparingly, citing national security concerns.

Still, Texas lawmaker McCaul has cited the $23 billion in licenses the BIS has granted for US firms to sell technology to Chinese companies in the first quarter of last year as evidence it’s too lenient. In the past, some Republicans have proposed moving responsibility for export controls from the Commerce Department to the Pentagon, which they argued would be more aggressive.

SMIC was added to the US entity list in 2020 in the closing days of the Trump administration, severely restricting its access to advanced technology. The BIS said SMIC’s inclusion on the list is due to national security concerns. 

A US delegation led by McCaul is visiting the Netherlands for bilateral meetings this week with Dutch government officials, members of parliament and other stakeholders.

McCaul added that he would warn investors including ASML Holding NV, Europe’s most valuable tech company, about investing in China. Under Chinese President Xi Jinping it’s “never a winning proposal,” he said. The delegation will meet with ASML on Thursday.