A close up image of a CPU socket and motherboard laying on the table.

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GUANGZHOU, China — Shares of SMIC, China’s biggest contract chipmaker, plunged over 19% on Monday, after the U.S. government said it was considering putting export restrictions on the company. 

The firm’s Hong Kong-listed shares were down 19.75% at 18.98 Hong Kong dollars as of 11:33 a.m. local time. SMIC’s recently-listed Shanghai shares were down 9.2% at 60.18 yuan. 

The U.S. Department of Defense is assessing whether to add SMIC to the Commerce Department’s so-called Entity List

“Such an action would ensure that all exports to SMIC would undergo a more comprehensive review,” a Department of Defense spokesperson said. 

China has put a lot of emphasis on developing its domestic semiconductor industry, a move that has gained further impetus amid the trade war with the U.S. SMIC, which manufactures chips, is however still behind rivals like Taiwan’s TSMC and South Korea’s Samsung Electronics in terms of technology. 

SMIC also relies on American chipmaking equipment. If it were to be added to the Entity List, that could make it more difficult for the company to obtain the gear needed to develop its capabilities and hurt production. 

The U.S. has used that particular blacklist to target other companies including Huawei and a number of surveillance and artificial intelligence firms

In the case of Huawei, the blacklisting meant that it was cut off from using a licensed version of Google Android’s operating system for its smartphones, a move which has hurt the Chinese technology giant’s smartphone business outside of its domestic market. 

Earlier this year, the U.S. made further moves to cut Huawei off from key semiconductor supplies, as tensions between China and the U.S. continue to rise with technology caught in the middle. 

In SMIC’s case, the Department of Defense is considering whether the chipmaker aids China’s military and defense apparatus, the Wall Street Journal reported, citing people briefed on the discussions. The newspaper pointed to a report by U.S. defense contractor SOS International LLC that alleges SMIC has worked with a large Chinese defense company and that university researchers linked to the military have tailored their work to fit SMIC’s technology.

SMIC denied that it works with the military.

“Any assumptions of the Company’s ties with the Chinese military are untrue statements and false accusations,” it said in a statement posted on WeChat on Saturday.

“The Company is in complete shock and perplexity to the news. Nevertheless, SMIC is open to sincere and transparent communication with the U.S. Government agencies in hope of resolving potential misunderstandings.”



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