Fri, Dec 15, 2023 page12

• China chipmaker skirts US’ ban via US firms, money

  • Reuters, WASHINGTON
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  A Chinese chip designer, partly owned by the country’s top-sanctioned chipmaker, is purchasing US software and has US financial backing, relationships that underscore Washington’s difficulty in applying new rules meant to block US support for Beijing’s semiconductor industry.

  The company, Brite Semiconductor Co (燦芯半導體), offers chip design services to at least six Chinese military suppliers, a Reuters examination of company statements, regulatory filings, tenders and academic articles by the Chinese People’s Liberation Army (PLA) researchers and institutions found.

  Its second-largest shareholder and top supplier, chipmaker Semiconductor Manufacturing International Corp (SMIC, 中芯), was placed on the so-called US “entity list” over alleged ties to Beijing’s military, effectively barring it from receiving some goods from US suppliers.

  

  The logo of Semiconductor Manufacturing International Corporation (SMIC) is pictured at the China International Semiconductor Expo in Shanghai, China on Oct. 14, 2020.

  Photo: Reuters

  Despite those relationships, Brite boasts funding from a US venture capital firm backed by Wells Fargo bank and a Christian university, and has continued access to sensitive US technology from two California-based software companies, Synopsys and Cadence Design, documents showed.

  Reuters found no evidence that Brite’s relationships with US firms violate any regulations.

  The administration of US President Joe Biden, with bipartisan support, has taken pains to stop the flow of technology and investment to Beijing’s chip sector, unveiling rules in October last year to halt some US exports of chips and chipmaking tools to China, and in August announcing a ban on certain new US investments in the industry. It also added dozens of Chinese companies to the entity list, many over ties to China’s military.

  Although not an apparent breach of any US rules, Brite’s access demonstrates the challenges facing Washington’s bid to keep US equipment and money from being used to advance China’s military ambitions, and suggests the US would struggle to succeed unless it targets many more companies that have slipped under its radar.

  US Republican Senator Marco Rubio, an influential China hawk and member of the foreign relations committee, characterized Reuters’ findings on Brite as “concerning.”

  “Companies connected to China’s military supply chain should not have access to US technology and investment. The Biden administration’s haphazard approach to export controls and investment restrictions clearly is not working,” he said.

  Others said Brite illustrates Beijing’s ability to use low-profile companies to skirt US export bans on big-name Chinese firms.

  “Brite is a classic example of how a US-China joint venture could end up funneling valuable semiconductor technology to SMIC and the PLA,” said Martijn Rasser, managing director of Datenna, an open-source intelligence company.

  SMIC, which holds a 19 percent stake in Brite, has long been in Washington’s crosshairs. The previous US administration added it to a list of “military end users” in November 2020.

  Next, SMIC was added to the “entity list” over its apparent ties to the Chinese military industrial complex. SMIC has previously denied any ties to China’s military, saying that it manufactures chips and provides services “solely for civilian and commercial end-users and end-uses.”

  Brite Semiconductor, founded in 2008 as a joint venture between US venture capitalists and Chinese firms, has longstanding ties to SMIC.

  SMIC was Brite’s largest shareholder until last year. That stake turned Brite into “a bridge between China’s No. 1 foundry SMIC” and other companies with chip design needs, a presentation on its website showed. The 2021 presentation also notes that SMIC’s co-CEO serves as Brite’s current chairman of the board of directors.

  About 85 percent of the funds Brite Semiconductor paid to all suppliers for goods and services last year went to SMIC, its October IPO prospectus showed.

  Beyond its links to SMIC, Brite sells its chip design services to Shanghai-based ComNav Technology Ltd (上海司南衛星導航技術股份有限公司), which makes satellite navigation systems for China’s navy and the Strategic Support Force, the PLA unit that oversees information, electronic, and cyberwarfare, a Reuters review of articles authored by PLA researchers and military tenders shows.

  Chinese tech companies with links to the Chinese military often get added to the entity list, but Brite has never faced such restrictions, public records show.

  “It sure seems like they would be a candidate for an entity listing,” said Emily Kilcrease, a former trade official now at the Center for a New American Security, after reviewing Reuters’ findings.
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