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US ban threatens Beijing's ambitions as a tech power



A US ban on American companies doing business with a Chinese chip maker accused of stealing technology secrets threatens to oust a company with $ 5.7 billion in government funding, which is China's ambition to build a World-class semiconductor industry damaged.

Fujian Jinhua Integrated Circuit Co., established in 2016, built a factory aiming to end China's dependence on foreign semiconductors and became a key player in Beijing in the final phase of its three-decade program to build globally competitive chipmakers anointed. Jinhua, which employs more than 1,000 people, wanted to launch mass production of memory chips in smartphones and USB drives by the end of the year to achieve the government's goal of halving semiconductor imports by 2020.

These plans are likely because Weil Jinhua depends on a group of American suppliers who provide design and engineering for the components, analysts say.

The US Department of Commerce banned Monday exports and transfers of technology from the US to Jinhua, which is accused by Idaho. based

Micron technology
Inc.


MU 1.07%

Theft of design secrets – without official approval. US efforts to stem China's technological advancement are part of wider trade between the two largest economies in the world, which focused mainly on tariffs.

The ban was different from a similar ban against the Chinese telecommunications giants

ZTE
Corp.

Earlier this year, the Department of Commerce cited national and economic security concerns in Jinhua case. ZTE's punishment, which was later reversed following President Trump's intervention, was imposed for violating the terms of an agreement on sanctioning sales to Iran and North Korea.

"What the US is doing now could be transferred to what is considered high-end technology that the US no longer wants in China," said Alicia Garcia Herrero, a China-based economist with the French investment bank

Natixis
.

"This case is very different from ZTE."

Montag's restrictions on Jinhua follow stricter restrictions on Chinese investment in American technology companies. In response, China has withheld approval of the business, which in July too

Qualcomm
Inc.

Scrapping its $ 44 billion acquisition of a Dutch chipmaker

NXP Semiconductors

China's foreign ministry said on Tuesday that Chinese companies should abide by laws, but "we also demand foreign governments to provide our companies with fair and reasonable treatment." Jinhua, whose shareholders are a handful of companies ultimately owned or controlled by The Fujian Provincial Government, did not respond to calls seeking a comment.

Jinhua is part of a trio of state-owned Chinese semiconductor companies that will upgrade Beijing for the storage market, including Tsinghua Unigroup Ltd. and Innotron Memory Co. Jinhua says it has been included on its website in a blueprint of the semiconductor industry under China's Five Year Plan, which began in 2016, a national development roadmap that is closely linked to the rise of President Xi Jinping.

As part of its effort to promote Chinese chips, China is estimated to invest $ 150 billion over the decade from 2017 to support its chip industry and develop more sophistication expertise along the value chain brings up. For example, for smartphones, Chinese brands account for about 50% of global exports, but 90% of their semiconductor needs continue to depend on imports. Beijing spent $ 260 billion on chip imports last year.

Jinhua focused on developing DRAM for consumer electronics markets. Jinhua's top executives at Silicon Valley recruitment fairs late last year said they planned a pilot run in late 2017 and mass production a year later, according to Micron's submission. Micron declined to comment. The company started production in September, but it does not go according to plan, according to a person familiar with the subject matter.

In December, Micron Technology sued Jinhua, California, and the Taiwanese partner of the Chinese company

United microelectronics
Corp.

They claimed they had stolen Micron's talent and business secrets. Jinhua denies the claim and the case continues.

A Chinese court in July joined Jinhua in a retaliatory strike against Micron, who accused Micron of violating Jinhua's patents and preventing Micron from selling in China. Micron denied the fees. UMC said Tuesday that the new restriction on Jinhua will not impact UMC operations and that UMC will not export products to Jinhua.

The Ministry of Commerce's ban will damage Jinhua, as the company is likely to rely on a handful of Californian companies that dominate the global supply of microtechnology that stacks, connects, cleans, and measures the wafers needed to make chips. Among them are

Applied materials
Inc.,

Lam research
Corp.

, and

KLA-Tencor
Corp.

According to analysts

"it's critical to China's semiconductor ambitions," said Mark Newman, a semiconductor analyst at Bernstein Research. "It is unlikely that they would be able to build without these companies.

China accounted for approximately 18% of Applied Materials' revenues by October 2017, 16% for Lam Research and KLA-Tencor each year According to FactSet, by June US companies did not immediately respond to requests for non-business commentary.

China's semiconductor industry remains tense and sees its fate as largely dependent on an escalating Sino-US trade conflict.

The government's decision is a sign that the US is ready to play the Trade War Card, "said Wang Yanhui, Secretary General of the Mobile China Alliance, a consortium of the telecommunications industry.

Write to Chuin-Wei Yap at chuin-wei.yap@wsj.com and Yoko Kubota at yoko.kubota@wsj.com


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