Why collapses the Chinese chip maker Smic on the stock market

Why collapses the Chinese chip maker Smic on the stock market

Shares of Smic, China's largest chip maker, lost more than 7% on Monday on the Hong Kong stock exchange after the US imposed restrictions on exports. The semiconductor giant risks access to key US technology

Another black Monday for the Chinese chipmaker Semiconductor Manufactoring International Corporation (Smic).

Smic shares lost up to 7.9% today on the Hong Kong stock exchange on news of US export restrictions to the Chinese group. The restrictions could exclude the Chinese manufacturer from key US equipment and software.

Smic said it had not been notified of the sanctions imposed by the US Department of Commerce, and that it has no ties to the Chinese military.

But the media reports were enough to worry investors. Even on the Shanghai market, Smic shares lost more than 7% .

On Monday, September 8, the stock had already plunged 23% in Hong Kong, losing $ 4 billion. One fifth of their value. In the wake of rumors about upcoming US sanctions.

After the news of possible US sanctions, China promises to take "necessary measures to protect the rights and legitimate interests of Chinese companies".

All the details.


Suppliers of certain equipment to Smic will now have to apply for individual export licenses. According to a letter from the US Department of Commerce dated Friday and seen by Reuters .

However, as CNN points out, the US Department of Commerce has not yet added the Chinese company to its Entity List. The Commerce Department did not respond to a request for comment outside normal business hours.


However, according to a copy of the letter seen by the Financial Times , the US Department of Commerce argues that exports from US companies to SMIC represent an "unacceptable risk" of being diverted to "military end use".


Semiconductor Manufactoring International Corporation represents one of China's national champions. It is also an important part of Beijing's drive to forge a self-sustaining domestic chip industry.

In July, the Shanghai-based company raised nearly $ 7 billion in a secondary listing on the Shanghai Star Market, China's answer to Nasdaq.

The company said it intends to use the funds to develop additional capacity for the production of advanced chipsets.


As recalled by the FT, "from 2019 SMIC signed orders worth more than $ 2 billion with the US company Applied Materials and Lam Research. The American businesses were respectively the first and third suppliers of Smic equipment between 2017 and 2019, according to the listing prospectus ".


Therefore, the restrictions risk holding back the Chinese chipmaker's plan as it relies on equipment manufactured by companies from the United States or nations allied to the United States.

As reported by the Financial Times, analysts say the US ban poses a serious threat to the chip maker.

For Morningstar analysts, for example, it would be difficult for Chinese companies alone to supply Smic with the equipment needed to produce chips.


While confirmation from the US Department of Commerce is still lacking, Beijing has spared no criticism of Washington's move. China "opposes the generalized use of the concept of national security by the United States". This was stated by Beijing Foreign Ministry spokesman Wang Wenbin. Beijing accuses it of violating the principles of the market economy and of international economic and trade rules, and of abusing export controls and other restrictive measures to the detriment of Chinese companies. "China will continue to take the necessary measures to safeguard the legitimate rights and interests of Chinese companies," Wang concluded.


Any type of Washington export ban for the Chinese company will therefore mark yet another escalation of tensions between the two largest economies in the world. The China-US war is in fact (and above all) on chips.

Since China spends a lot to become a major semiconductor manufacturer, the United States also needs to be made an attractive location for factories like Taiwan, China, South Korea, Singapore, Israel and parts of Europe. This is what the Semiconductor Industry Associationin (Sia) claims in a report published last week.

Just last week the US semiconductor industry said it will need up to $ 50 billion in federal incentives to stop the decade-long trend of overseas manufacturing.

According to the report, “only 6% of the new global development capacity will be located in the United States. On the contrary, China will add about 40% of the new capacity in the next decade and will become the largest semiconductor manufacturing site in the world ”.

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/perche-crolla-il-produttore-cinese-di-chip-smic-in-borsa/ on Mon, 28 Sep 2020 13:30:54 +0000.