National Security

US strikes at the heart of China's tech ambitions with chipmaker ban

By Sherisse Pham

US restricts Chinese chipmaker Fujian Jinhua Integrated Circuit Co. from buying American parts.

Hong Kong -- The United States just delivered a sharp blow to China's lofty tech ambitions.
Its move to target a state-owned Chinese chipmaker over national security concerns goes to the heart of the clash between the two economic superpowers over technology and trade.

It also exposes China's lack of successful homegrown semiconductor companies as one of the biggest vulnerabilities in the country's bid to become a global tech powerhouse.

The US Commerce Department on Monday announced that it is restricting American companies from selling crucial software and technology to Fujian Jinhua Integrated Circuit Co., saying it "poses a significant risk of becoming involved in activities that are contrary to the national security interests of the United States."
The ban could bring the chipmaker, which relies on foreign tech, to its knees. 

A similar US move against Chinese telecommunications equipment maker ZTE in April brought its factories to a standstill for months.
The US government didn't provide details about what potential activities it's worried about. 

But Fujian Jinhua, which is owned by the provincial government of Fujian in southeastern China, has been accused of stealing trade secrets by US chipmaker Micron Technology.
Fujian Jinhua, which has filed a countersuit against Micron in China, didn't respond to a request for comment Tuesday.
The Trump administration has said China's efforts to get hold of American technology are "an existential threat" to the future of the US economy. 

It has made the issue a central part of its trade fight with Beijing, imposing tariffs on $250 billion of Chinese goods and threatening more unless Beijing changes its industrial policies.

Trade war turmoil
Like the ZTE ban, the US move against Fujian Jinhua is likely to add to the tensions between Washington and Beijing.
"China opposes the United States' behavior of abusing the concept of national security and export control measures, as well as the United States' unilateral sanctions and its interference in normal international trade cooperation between companies," the Chinese Commerce Ministry said in a statement late Tuesday.
It urged the US government to "stop the wrong measures immediately" and "protect the legitimate rights of the companies."
Analysts see little chance of either side backing down anytime soon. 

Trade talks between the two sides have failed to make headway this year. 

Bloomberg News alarmed investors Monday with a report that the US government is set to move ahead with even more tariffs if a meeting expected to take place next month between Chinese dictator Xi Jinping and US President Donald Trump doesn't go well. 

US stocks slumped, and the yuan fell to its lowest level in a decade in Asia trading.
President Trump suggested Monday on Fox News that he's not expecting quick progress.
"I'd like to make a deal right now," he said. 

"I just say they're not ready."

China's reliance on foreign tech
Xi has made building China's semiconductor industry a key priority, even comparing a computer chip to the human heart.
"No matter how big a person is, he or she can never be strong without a sound and strong heart," he said in April during a visit to a semiconductor factory in central China.
That heart is currently powered by foreign tech.
China buys more computer chips than any other country, consuming about $140 billion, or 38%, of the world's semiconductors, according to research firm IC Insights. 

Despite its voracious appetite, China produced just $18.5 billion, or about 13% of the world's chips.
Beijing is aggressively trying to close that gap, but developing a competitive chip industry is expensive, politically sensitive and takes time.
The government has invested billions in homegrown chipmakers like Fujian Jinhua, Tsinghua Unigroup and Innotron Memory to help them develop their own intellectual property. 

Even e-commerce company Alibaba is getting in on the game, announcing last month that it will set up a company focused on building artificial intelligence chips for cloud computing, internet-connected devices and other sectors.

Chinese companies have also tried to get their hands on technology by bidding for foreign chip businesses. 

But several attempts to buy stakes in American firms failed after US authorities objected to the deals on national security grounds.
Despite the hurdles, China is impatient to grow the industry. 

Beijing's "Made in China 2025" plan — one of the industrial policies singled out by the Trump administration as a concern — includes the ambitious goal of achieving self-sufficiency in high-tech industries, including semiconductors, by 2025.
The trade war is complicating that effort.
China needs foreign tech to keep developing its homegrown chip industry, according to SEMI, an international association for companies that supply the electronics industry.
"We need to face up to the fact that there is still a certain gap between the domestic semiconductor industry and that of [the] international advanced level," the group's head of China, Lung Chu, told reporters in Shanghai last month. 

"Therefore, international "cooperation" is the key to industry growth."

National Security

U.S. to Block Sales to Chinese Tech Company
By Alan Rappeport

The United States will restrict exports to Fujian Jinhua Integrated Circuit, a state-owned Chinese company. Micron Technology, an American semiconductor company, has accused Jinhua of stealing intellectual property.

WASHINGTON — The United States said on Monday that it would block a Chinese state-owned technology company from buying American components because it posed a national security threat, the latest volley in an escalating dispute between the world’s two largest economies.
The company, Fujian Jinhua Integrated Circuit, a manufacturer of semiconductors, “poses a significant risk” of becoming involved in activities that might infringe on national security, the Commerce Department said.
[Behind accusations that Fujian Jinhua was stealing American technology to power China’s future.]
The move could cripple Jinhua, which relies on American components for its semiconductors, and followed similar action taken by the Commerce Department this year to block sales of components to ZTE, a Chinese telecom company. 

The ZTE ban was rescinded after President Trump — responding to a request from his "friend" Xi Jinping in May — asked the department to lighten the penalty. 

ZTE agreed to pay a large fine, reshuffle its leadership and undergo compliance monitoring by the United States.
But relations between the United States and China have worsened since then, and the Trump administration is taking an increasingly hard line on transactions involving Chinese entities. 

It is eager to prevent China’s ascendance as an economic and technological powerhouse and has begun aggressively scrutinizing foreign deals to prevent Beijing from gaining access to valuable American intellectual property.
This month, the Treasury Department outlined how it would use new powers that allow the United States to review a wider range of foreign transactions, including those in sensitive industries like technology and telecommunications.
“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 commerce secretary. 

“Placing Jinhua on the entity list will limit its ability to threaten the supply chain for essential components in our military systems.”
Jinhua has been on the Trump administration’s radar for several months. 

Micron Technology, a computer memory company in Idaho, accused Jinhua last year of stealing intellectual property. 

In July, Micron was barred from selling some of its products in China after Jinhua and its Taiwanese "partner", United Microelectronics, accused Micron of violating their patents.
Jinhua is opening $5.7 billion factory in China’s Fujian Province and has become increasingly ambitious in its desire to become a global player in the memory chip business.
The United States and China have been engaged in a trade war, with Mr. Trump imposing tariffs on $250 billion worth of Chinese goods and threatening to hit all imports from China with levies. 

China has responded with its own tariffs, and the two countries have exchanged increasingly heated words in recent weeks.

The United States wants China to open its market to American businesses and end its longstanding practice of pressuring American companies to hand over valuable technology as a condition of doing business there. 

Mr. Trump and Xi are expected to meet in Argentina next month at the Group of 20 summit meeting, where they plan to discuss trade, North Korea and other issues.
While Mr. Trump’s tariffs have proved to be unpopular with Democratic lawmakers, his efforts to stop the theft of intellectual property have drawn praise even from his skeptics on trade.
“China’s state-owned & directed companies lie, cheat & steal at government’s behest,” Senator Marco Rubio, a Republican from Florida, said on Twitter on Monday. 

“Fujian Jinhua must be held accountable for being part of that illegality. This was the right move today to protect our tech knowledge.”