SMIC Photo: VCG

China's A-shares related to leading chipmaker Semiconductor Manufacturing International Corp (SMIC) surged on Monday, defying the Trump administration' latest move of putting SMIC on its Entity List, which aims to contain China's development of indigenous advanced technologies.

Industry observers noted that the US' action amounts to a monumental obstacle for SMIC's high-end chip production in the long run, but it has given the Chinese semiconductor sector a sober reminder of the urgency of building a self-controlled industry chain.

By blacklisting SMIC, the US Commerce Department stated on Friday that for items or technologies utilized by the Chinese company for 10-nanometer (nm) and below technology nodes, a licensing review policy of presumption of denial shall be applied for export license applications.

Despite the potential long-term negative impact, SMIC shares trading in Shanghai were down only 1.2 percent to 54.36 yuan ($8.3) on Monday, while its supplier NAURA Technology Group Co rose 8.96 percent to 173.25 yuan and Advanced Micro-Fabrication Equipment Inc was up 5.41 percent to 165.50 yuan.

SMIC said that the US' restrictions will have "no material adverse effect" on its short-term business and financial position. According to the company's financial results for the third quarter of 2020, sales revenue from 14-nm and 28-nm products only accounted for about 14.6 percent of the total, while most revenue came from medium- and low-end chip products.

"Currently, 28-nm chips will suffice even for the construction of 5G basic stations," Huang Haifeng, an independent telecom industry insider, told the Global Times on Monday. He said the US' action poses a monumental challenge for the research and development (R&D) of cutting-edge chip products in China, as chipmaking raw materials, technologies and equipment like EUV lithography machines are more or less connected with US technology.

Aside from the latest US restrictions, internal conflicts among senior members of management also weighed on the leading Chinese chipmaker. Just a day after the company announced plans to appoint former TSMC chief operating officer Jiang Shangyi as vice chairman of the board of directors, its co-CEO Liang Meng Song reportedly submitted a resignation letter.

Liang's letter indicated that SMIC has completed R&D for 7-nm technologies and is expected to enter risky mass production in April 2021, while the R&D for eight key technologies for 5-nm and 3-nm chip products has started, but it is awaiting EUV lithography machines to conduct comprehensive development.

Huang said that SMIC may not want to lose either of the two top managers, as Liang represents the company's high-end chip capability while Jiang will help the company optimize efficiency and revenue.

Liang Zhenpeng, a senior industry analyst, told the Global Times that "The US' unreasonable crackdown on the leading chipmaker sounds an alarm to the Chinese industry, reminding it of the urgency of a complete chip industry chain that is controllable." 

Experts urged all domestic industry players to make long-term plans, including the cultivation of talent and capital investment, to seek breakthroughs in key areas.

In August, the State Council, the country's cabinet, issued new rules to bolster chip and software sector growth, including the first-ever 10-year income tax exemption policy to support the development of advanced technology enterprises that produce semiconductors of 28-nm and below.

Li Yi, a senior research fellow at the Internet Research Center of the Shanghai Academy of Social Sciences, said that the incoming Biden administration in the US may slightly relax the crackdown on China and its tech firms, as Biden has stated he wants to restore the US' global leading role.