US – Government approved exports for Huawei and SMIC

US – Government approved exports for Huawei and SMIC

23. October 2021 0 By Horst Buchwald

US – Government approved exports for Huawei and SMIC

Washington, Oct. 23, 2012

The U.S. government’s decision to grant $100 billion worth of export licenses to suppliers of Huawei Technologies Co. and China’s leading chipmaker Semiconductor Manufacturing International Corporation (SMIC) – both of which are on the U.S. trade blacklist – shows how difficult it is for the world’s two largest economies to decouple, analysts say.

From November 2020 to April 2021, U.S. suppliers received 113 export licenses worth $61 billion for sales to Shenzhen-based telecommunications giant Huawei and 188 licenses worth $42 billion for sales to Shanghai-based SMIC, according to a Reuters report , citing U.S. congressional documents.

The mass licensing, suggests the decision was made based on strong economic arguments as the U.S. grapples with the effects of a prolonged global chip shortage, value chain experts said.

“The U.S. temporary license approvals reflect the balancing act between long-term geopolitical visions and short-term chip shortages,” said Gary Ng, senior economist for Asia-Pacific at investment bank Natixis. “The pressure is reflected in the shortage of chips, especially mature nodes and small wafers, which also affects domestic and foreign sales by U.S. companies.”

The U.S. government under former President Donald Trump had placed Huawei and SMIC on the country’s Entity List in May 2019 and December 2020, respectively, for national security reasons, which prevents the two companies from doing business with American companies.

U.S. companies that want to export products and software to countries on that list must apply for a license from the country’s Ministry of Commerce, which reviews those applications with a “presumption of denial,” meaning they are highly unlikely to be approved.

SMIC, the world’s fourth-largest semiconductor fab, is currently building new chip manufacturing facilities in Beijing and Shenzhen. Its co-CEO Zhao Haijun recently warned of possible delays in U.S. approval of export licenses for the company’s equipment suppliers.

However, as Reuters reported, more than 9 out of 10 license applications for SMIC suppliers were approved, while the approval rate for Huawei suppliers was 69 percent.

One reason for the license approvals could be that U.S. suppliers are unwilling to give up on the Chinese market, where American technologies are in high demand, analysts said. “China is still the largest market for semiconductors, accounting for more than 30 percent of global demand, and the U.S. semiconductor industry will not willingly give up this market because of tensions between the two countries,” said Arisa Liu, a senior research fellow at the Taiwan Institute of Economic Research. He added:

“They will try to find ways to do business with China, which is also the largest production base for electric vehicles.”

The export licenses give Huawei a much-needed lifeline. According to Will Wong, an analyst at market research firm IDC in Singapore, “These permits are critical for Huawei to keep its brand in the market and possibly even buy time to turn things around,” said Will Wong, an analyst at market research firm IDC in Singapore.

 

Geopolitics is expected to remain a priority in any U.S. government decision, despite the importance of the Chinese market, Wong said. “I would say the Biden administration will take a more focused approach that balances national security and economics,” Wong said, adding that the administration’s policy focus will be more on advanced technologies such as 5G.

 

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