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China’s top chipmaker’s stock tumbles on threat of US sanctions

China’s top chipmaker’s stock tumbles on threat of US sanctions
Share prices of China’s largest semiconductor manufacturer SMIC fell sharply on Monday after reports that the Trump administration will restrict technology sales to the firm over an alleged risk they will be used by the military.

SMIC’s Shanghai-listed shares sank as low as seven percent, while those trading in Hong Kong were down nearly five percent on Monday. 

The drop came on the heels of media reports claiming that suppliers of certain equipment to SMIC will need to get a special export license. The reports cited a US Department of Commerce letter to companies which said that the supplies sold to the Chinese chipmaker posed an “unacceptable risk” of being diverted to “military end use.”

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The company, which denies any links to the Chinese military, said that it had seen the media reports but did not receive any official notice of the looming restrictions. The firm also advised investors and shareholders “to exercise caution.”

Following the news of fresh US sanctions on yet another Chinese tech company, the Global Times newspaper published an editorial saying that China is facing “high-tech suppression being led by the US.” It added that Beijing must brace for a “new long tech march” and end its dependency in the vital sector in light of US restrictions on SMIC.

The reported measures targeting China’s biggest contract chip manufacturer do not amount to a total ban, as was the case for Huawei and some other Chinese companies added to the US “Entity List.” However, some analysts noted that it is still unclear how the restrictions may be implemented, and they warned that the firm may find itself completely cut off from crucial US software and chipmaking equipment, and facing multiple setbacks. 

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“It hits right at the core of China’s ability to be autonomous in technology,” David Roche, president of Independent Strategy, told CNBC on Monday.

The move comes amid a broader US pressure on Chinese technology companies and increasing political and economic tensions between the world’s biggest economies.

Two popular Chinese social media apps – TikTok and WeChat – are under threat of being completely banned in the US. In an effort to stay in the market, where it has millions of users, TikTok is trying to secure a deal with US corporations Oracle and Walmart, selling them a 20 percent stake in the video-sharing app.

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