On US Restricting Sales to Chinese Chip Maker Fujian Jihua

Escalating the dispute between to word’s two largest economies, the United States said it would stop Fujian Jihua, a Chinese state-owned semiconductor company, from buying American components, software and technology goods because the latter “poses a significant risk” to the national security.

This brings back the memory of ZTE, another Chinese firm that was treated with similar action by being put on the Entity List earlier this year. The move hurt ZTE hard.

Regarding why the ban, the statement says, “Jinhua is nearing completion of substantial production capacity for dynamic random access memory (DRAM) integrated circuits“, which will threaten “the long term economic viability of U.S. suppliers of these essential components of U.S. military systems.”

Adding to that, the Secretary of Commerce Wilbur Ross said, “Placing Jinhua on the Entity List will limit its ability to threaten the supply chain for essential components in our military systems.”

In other words, Jihua might kill competitors of the United States, who happen to be the military supplier for America. For the sake of “national security”, Jihua has to be banned. Why would this happened?

About Jinhua

Founded in 2016, Fujian Jihua started off as a state-owned company whose initial capital registered 11.44 billion yuan (1.64 billion dollars). Just 3 moths after its birth, it signed a technology collaboration contract with Taiwan united Microelectronics Corp. for the development of dynamic random access memory (DRAM). From this point of view, Fujian Jihua is to its core a combination of “state funded + technologies from home and overseas”. 

Jinhua and Micron Technology

It seems reasonable that Chinese tech industry bears the brunt of the escalating dispute of the US-China trade war. But why Fujian Jinhua, and not other companies?

The answer is in the statement. Even though the identity of the supplier wasn’t made clear in the statement, it takes 1 sec to know that it’s Micron Technology, Inc., the only American company among the 3 DRAM giants.

And it so happens that there were law suit disputes among Fujian Jihua, United Microelectronics and Micron.

In 2017, Micron accused Fujian Jihua and United Microelectronics of stealing its memory chip techniques. On January 19th, 2018, Fujian Jihua filed a lawsuit against Micron on intellectual property infringement, whose ownership was transferred from United Microelectronics on January 3rd.

According to Micron’s fiscal report of 2017, its sales amount registered 10.4 billion dollars in the Chinese district, accounting almost half of its revenue worldwide. So the ban on selling products in China would be a big hit to Micron as well.

Possible outcomes of the export ban

From Fujian Jinhua’s point of view, the equipment for semiconductor production can be brought from South Korea and Taiwan. The core products such as mask aligner can be brought from Europe. And it’s not hard to find the alternative solutions in other countries and districts.

By contrast, Micron is at a more delicate spot. In the lawsuit with Fujian Jihua in 2018, Micron was banned from selling, importing or marketing dozens of products in China. And it’s unlikely that Micron would fill another lawsuit to cancel the restriction. That said, it’s more likely that Micron will negotiate with Fujian Jihua and United Microelectronics for possible intellectual property transference.

Opinions

Some maintain the export ban would cripple Jihua, since its businesses rely heavily on American components for its semiconductors. It’s possible.

In an industry where sever competitions are constantly going on such as the semiconductor field, technology competitions, fighting over property rights and innovative marketing strategies are not uncommon. But the rise and development of a new company is always closely related to policies changes.

To some, it’s a long way to go for the Chinese memory chip industry before it can actually post a threat to the current giants. But taking it up to the government is like a statement of lacking confidence.

What do you think? We’d love to hear about it.

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