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U.S. adds Chinese technology companies to export blacklist

(Bloomberg) --The U.S. Commerce Department barred five additional Chinese entities from buying American-made products, in a move that risks inflaming tensions ahead of President Donald Trump’s planned meeting with Chinese leader Xi Jinping to restart trade talks.

The move follows the similar blacklisting of Chinese telecommunications giant Huawei Technologies Co. last month, blocking it from buying U.S. software and components that it needs to make its products.

In a statement on Friday, the Commerce Department said the entities were part of China’s efforts to develop supercomputers. It said they raised national security concerns because the computers were being developed for military uses or in cooperation with the Chinese military.

The Chinese embassy in Washington didn’t immediately respond to a request for comment.

"While Huawei gets attention, the most important sector for U.S.-China economic competition is semiconductors,” Derek Scissors, a China expert at the American Enterprise Institute, who informally advises the Trump administration. “Coming a week before the president meets Xi Jinping, it’s a welcome sign the U.S. won’t trade advanced technology for Chinese commodities purchases."

China chips.jpg
Silicon wafers made by Taiwan Semiconductor Manufacturing Co. (TSMC) are arranged for a photograph at the company's headquarters in Hsinchu, Taiwan, on Wednesday, Jan. 16, 2013. Taiwan Semiconductor Manufacturing Co., the worlds largest supplier of made-to-order chips, is scheduled to announce company results tomorrow. Photographer: Maurice Tsai/Bloomberg

Among those added to the blacklist were AMD’s Chinese joint-venture partner Higon, Commerce said in the statement. Also included were Sugon, which Commerce identified as Higon’s majority owner, along with Chengdu Haiguang Integrated Circuit and Chengdu Haiguang Microelectronics Technology, both of which the department said Higon had an ownership interest in.

The ban affects AMD’s Chinese joint venture THATIC, which was established in 2016. AMD uses THATIC to license its microprocessor technology to Chinese companies including Higon.

THATIC, or Tianjin Haiguang Advanced Technology Investment Co., is a Chinese holding company comprising an AMD joint venture with two entities, according to an AMD regulatory filing. THATIC provides chips to Sugon, a Chinese server and computer maker.

Lisa Su, AMD’s chief executive officer, said at a recent conference in Taiwan that AMD would not license its newer technologies to Chinese companies.

"We are currently evaluating the addition of five new entities," AMD spokesman Drew Prairie wrote in an email on Friday. "AMD will comply with the regulations governing that list, just as we have complied with U.S. laws to date. We are reviewing the specifics of the order to determine next steps related to our joint ventures with THATIC in China."

The blacklisting requires American companies doing business with the Chinese firms to get a license from the U.S. government in order to sell their products. The policy for granting such licenses is that there’s a presumption of denial of such a request, according to the Commerce Department statement.

"Sugon is going to be pinched," said Anand Srinivasan, an analyst at Bloomberg Intelligence. "The THATIC joint venture may have been to grease AMD’s entry into China. It was to appease the Chinese to give them a bit of intellectual property to expand their capabilities. For AMD, it is a high-margin business, but it is not material."

The U.S. government said on Friday that Sugon is “involved in activities determined to be contrary to the national security and foreign policy interests of the United States.” Sugon is also the majority owner of Higon, according to the U.S. government.

Sugon is open about its work with the Chinese government. The company hopes to “gradually build a cloud data service network covering hundreds of cities and sectors to provide a wealth of intelligent applications and services for the government, industry and the general population,” according to its website.

Sugon had the largest share of China’s supercomputer market from 2009 to 2016, according to the company’s website.

The fifth entity is the Wuxi Jiangnan Institute of Computing Technology, which Commerce said was owned by the People’s Liberation Army’s 56th Research Institute. That institute’s mission, according to Commerce, is “to support China’s military modernization.”

The action could heighten tensions just as Trump is preparing for a high-stakes meeting with his Xi during the Group of 20 meetings in Japan from June 28-29.

The U.S. said the companies are “involved in activities determined to be contrary to the national security and foreign policy interests of the United States.” The notice will be published in the federal register on Monday, making it an official directive.

Bloomberg News