SMIC’s relationship to the Chinese military is under scrutiny, according to the Reuters report, which cited an unnamed US official and two former officials briefed on the matter. The plunge in SMIC stock wiped 31 billion Hong Kong dollars ($4 billion) off its market value.
The Department of Defense declined to comment on the reports. SMIC, China’s biggest semiconductor maker, said on Monday that it was “in complete shock.”
The company “manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses,” SMIC said in a statement filed to the Hong Kong Stock Exchange. “We have no relationship with the Chinese military.”
SMIC added that it is “open to sincere and transparent communication” with US government agencies “in hope of resolving potential misunderstandings.”
Sanctions against SMIC would be the latest move in an ongoing battle between Washington and Beijing over who controls the technologies of the future.
Sanctions on SMIC would hurt China’s chipmaking ambitions. The country wants to build a cutting edge semiconductor manufacturing industry, but that takes a lot of time and a lot of money.
Adding SMIC to the trade blacklist would throw up “significant new barriers to China’s semiconductor development,” Paul Triolo, head of geotechnology at Eurasia Group, wrote in a note last week.
China has earmarked more than $200 billion trying to get the country’s chip manufacturing industry to develop faster and more advanced semiconductors, according to Triolo.
The global supply chain of semiconductors means that restrictions against Chinese companies often end up hurting US firms as well.
Sanctioning SMIC, for example, would also “further undercut the revenue of US semiconductor manufacturing equipment companies that supply Chinese manufacturers, sapping the funds available to be reinvested into the [research and development] necessary to develop subsequent generations of semiconductors and related manufacturing equipment,” Triolo said.
In July, SMIC raised nearly $7 billion in a secondary listing on Shanghai’s Star Market, China’s answer to the Nasdaq. Shares popped more than 200% in their Shanghai debut, indicating Chinese investors were eager to buy into the country’s leading chipmaker.
On Monday, shares in SMIC were hammered both in Hong Kong, where they plunged nearly 23%, and in Shanghai, where they fell more than 11%.
SMIC’s Hong Kong-traded shares are still up more than 50% for the year. Shares in TSMC closed down 0.7% in Taiwan. Samsung stock rose 1.6% in Seoul.