China's SMIC Allegedly Violated U.S. Sanctions Selling Chips to Huawei

Although SMIC has clearly made a technological breakthrough by completing development of its 2nd generation 7nm-class (N+2) fabrication technology and initiating high volume manufacturing on this node, it should have obtained an export license from the U.S. government before supplying Kirin 9000s system-on-chip to blacklisted Huawei since the node uses American tech. Now, a U.S. senator calls to ban all exports to both companies.

In a report by Bloomberg, Michael McCaul, Republican chairman of the House Foreign Affairs Committee states that it looks like SMIC has violated sanctions with a view to obtaining intellectual property.

SMIC's development of its 2nd generation 7nm fabrication process has raised concerns about the enforcement of U.S. IP and technology export restrictions. Adding to the chorus of concerns, Representative Mike Gallagher, chairman of the House Select Committee on Competition with China, emphasized the need for stricter enforcement of U.S. tech exports. He advocated for a complete cessation of U.S. technology exports to both Huawei and SMIC, which would further intensify tensions and complexities in the U.S.-China tech trade landscape. 

"This chip likely could not be produced without U.S. technology and thus SMIC may have violated the Department of Commerce’s Foreign Direct Product Rule," Gallagher said in a statement published by Reuters. "The time has come to end all U.S. technology exports to both Huawei and SMIC to make clear any firm that flouts U.S. law and undermines our national security will be cut off from our technology."

Due to export restrictions imposed in 2020, all American technology supplied to Huawei or its subsidiaries must get an export license from the U.S. Department of Commerce's Bureau of Industry and Security, which would review it with a presumption of denial. As a result, Huawei lost access to TSMC's and Samsung Foundry's leading-edge chip production capacities and had to use Qualcomm's system-on-chips for its smartphones while waiting for China-based SMIC to develop a refined version of its 7nm fabrication technology, which some call a 5nm-class production node.

While SMIC is also blacklisted in the U.S. and can get new production tools only if the U.S. DoC BIS grants an appropriate export license, the company has managed to obtain equipment it needed from American companies. Apparently, these tools were used to make chips for Huawei without obtaining an appropriate export license.

McCaul pointed to the $23 billion worth of licenses that the BIS approved for U.S. companies to sell technology to Chinese entities in the Q1 2022, suggesting it shows excessive tolerance.