The Pentagon recently designated over a dozen Chinese technology firms, including 3D NAND maker Yangtze Memory Technologies Corp. (YMTC), as 'military companies' that pose national security risks to the United States. The inclusion into the list does not cause any immediate effect, but it bans the U.S. military from buying devices featuring YTMC's chips, and it bars the companies from buying advanced chipmaking equipment based on U.S. intellectual property. Meanwhile, the Pentagon also excluded SMIC Hong Kong International Co Ltd from the list.
YMTC is among dozens of China-based companies included in the so-called 1260H list that highlights companies with alleged ties to the Chinese military and potentially supporting Beijing's military-industrial complex. YMTC is named to be a 'military company along with artificial intelligence (AI) firms Yitu Technology and Beijing Megvii, drone manufacturers Chengdu JOUAV and DJI Technology, lidar producer Hesai Technology, and tech company NetPosa. All of them have operations in the U.S.
Pentagon's 1260H list, established under the National Defense Authorization Act for 2021 and updated annually, serves as a mechanism for the Defense Department to flag companies that could threaten U.S. national security by allegedly supporting Beijing's military activities. The inclusion on the list does not entail a ban on operations within the U.S. but renders participants ineligible for Defense Department contracts. Moreover, being named can lead to further actions like blacklisting by the U.S. Treasury Department, which would significantly curtail their business prospects in the United States.
An interesting thing about the current edition of the list is that the Pentagon excluded SMIC Hong Kong International Co. Ltd. from the list, citing that this unit does not belong to Semiconductor Manufacturing International Corp., China's largest foundry. Now, SMIC itself calls its Hong Kong unit a 'representative office.' That office naturally does not produce chips or is involved in any activities in mainland China. However, it is unclear whether the exclusion from the 1260H list opens SMIC doors to win contracts with the Pentagon.
SMIC and YMTC are on the U.S. Department of Commerce Bureau of Industry and Security's Entity List, and they cannot access advanced technologies developed in the USA, including wafer fab equipment. This is obviously a bigger concern for both companies than their ability to bid for U.S. government contracts.
