US bans investment in Chinese AI giants and considers banning key exports to top chipmakers

The move, first reported by the Financial Times, prevents Americans from investing in the company and will likely complicate SenseTime’s plans for an IPO in Hong Kong, which is expected to raise as much as $ 767 million this month. SenseTime did not immediately respond to requests for comment.

Separately, officials plan to discuss a Department of Defense proposal this month to close regulatory loopholes that made it possible for Semiconductor Manufacturing International Corp.

to buy critical US technology, people said. SMIC, as the company is known, has continued to buy U.S. chip making tools despite being added to the Department of Commerce’s entity list designed to restrict access to key U.S. exports.

The focus on SenseTime and SMIC signals a growing dynamic in the Biden administration to tighten the vise against Chinese technology companies, supported by bipartisan demands in Congress, as part of a global competition for supremacy.

US officials are also considering adding more Chinese tech companies to the Commerce Department’s list and Treasury’s list of companies banning US investment in the coming months, some people familiar with the matter said.

While officials from several agencies are pushing for a tougher approach on China, Commerce Department leaders stand against some of the plans because they say it will harm US businesses, people said.

The Department of Commerce did not respond immediately. The agency previously stated that it is promoting US exports for the benefit of American businesses and workers, and that doing business with China must not come at the expense of national and economic security.

SenseTime has continued its IPO plans despite a collapse in Chinese technology stocks and the listing of a subsidiary in 2019 for using its technology in China’s mass incarceration of mainly Muslim ethnic groups in its Xinjiang region.

While this blacklist made SenseTime’s initial public offering difficult to sell for some international investors, HSBC Corporate Finance (Hong Kong) Ltd. the deal, and the US companies Silver Lake and Qualcomm Inc.

are investors according to the IPO prospectus. Silver Lake and HSBC declined to comment. Qualcomm did not immediately respond to a request for comment.

SenseTime has marked the previous blacklist of its Beijing subsidiary in its IPO and stated that the restrictions “do not apply to other companies within the group that are legally separate from this entity”.

Chip maker SMIC was added to the list of entities a year ago, which prevents companies from exporting technology of US origin without a license. However, this has proven ineffective at keeping many of the manufacturing tools used to make semiconductors out of the hands of SMIC, the acquaintances said.

Under its current name, SMIC is prevented from buying US tools that are “unique” for building chips with circuits 10 nanometer and smaller, which is close to the forefront of semiconductor manufacturing technology. Because many manufacturing tools can be used to make chips of different sizes, exporters felt that they could still sell tools that could be adapted to produce smaller chips, and the restriction “effectively became a language that means nothing “. said of the people.

SMIC did not immediately respond to a request for comment.

The Department of Defense, with the assistance of officials from the State Department, Department of Energy and the National Security Council, plans to change wording to restrict SMIC’s access to items that are “capable” of making semiconductors with 14-nanometer circuits and smaller, well-known people said and expanded the list of items that SMIC cannot get. The fastest supercomputer in the United States uses chips of this size.

Pentagon spokesman John Supple said the department would “not comment on inter-agency discussions.” Representatives from the Ministry of Foreign Affairs and the Ministry of Energy and the National Security Council did not speak immediately.

The Biden government has identified the technology as a front in its global rivalry with China, though officials sometimes seemed to hesitate in their approach.

Some Commerce Department officials are trying to block the Defense Department’s proposal to close the loopholes for SMIC, the acquaintances said.

Sales representatives and U.S. toolmakers have told other officials that any change in SMIC restrictions will affect the bottom line of U.S. businesses and exacerbate a global chip shortage that affects a wide range of industries.

China is a major supplier of low-end chips. Defense Ministry supporters argued that imposing restrictions on tools for Chinese companies to manufacture them would not affect global supplies as China is not currently a large manufacturer of high-end chips, the acquaintances said. As for US companies, the stricter restrictions would only apply to a fraction of the products those US companies sell.

—Dave Sebastian contributed to this article.

Write to Kate O’Keeffe at [email protected]