U.S. bans technology exports to Chinese semiconductor and drone companies, calling them security threats

The Commerce Department said it has placed Semiconductor Manufacturing International Corp., or SMIC, drone maker DJI; and dozens of other Chinese companies and universities on the Entity List, which bans the export of U.S. technology to the entities unless the exporter receives a government license.

The sanction follows "evidence of activities between SMIC and entities of concern in the Chinese military industrial complex," Commerce said in a statement.

"We will not allow advanced U.S. technology to help build the military of an increasingly belligerent adversary," Commerce Secretary Wilbur Ross said about SMIC in a statement. "Between SMIC's relationships of concern with the military industrial complex, China's aggressive application of military civil fusion mandates and state-directed subsidies, SMIC perfectly illustrates the risks of China's leverage of U.S. technology to support its military modernization."

The Commerce Department said it was adding DJI for enabling high-tech surveillance in China, which the agency called a human-rights abuse.

The additions also include several construction companies, including China Communications Construction Company, for helping China militarize and claim disputed territory in the South China Sea.

Commerce also added to the list several universities, in Beijing, Nanjing and Tianjin, for actions including trade-secret theft or "acquiring and attempting to acquire U.S.-origin items in support of programs for the People's Liberation Army."

The sanction shows that cutting trade ties with China remains a top priority for the Trump administration's many China hawks, who view the country's growing tech and military might with increasing alarm. Similar concerns have also taken root in Congress, among both Republicans and Democrats, and could continue during a Biden administration.

The Entity List has become a favorite Trump administration tool to punish China and now includes more than 300 Chinese entities.

The Commerce Department, which maintains the list, has previously used it against Chinese telecom company Huawei and against Chinese entities engaged in alleged human rights violations in China's Xinjiang region.

Officials at SMIC and DJI, and at China's embassy in Washington, D.C., didn't respond immediately to requests for comment. SMIC has previously denied supporting China's military.

It wasn't immediately clear how much U.S. technology DJI uses to make its drones. The Shenzhen-based company is among the world's biggest drone manufacturers.

The Trump administration already began restricting exports to SMIC in September by notifying some U.S. companies that they would need a license to export to the chip maker. Inclusion on the Entity List is a broader sanction.

Founded in 2000 in Shanghai, SMIC ranks among the top five semiconductor manufacturers in the world, according to a report from the United States International Trade Commission, or USITC.

Industry experts say that SMIC's technology lags behind that of chip manufacturers in Taiwan and the United States but that Beijing is pouring billions into the industry to help SMIC and other Chinese companies catch up.

SMIC has enjoyed generous government financial support, including low-interest loans, tax breaks and investments to help build manufacturing facilities, the Organization for Economic Cooperation and Development in Paris said in a report last year.

Commerce said that the export ban will apply to technology needed to produce advanced semiconductors with silicon transistors sized at 10 nanometers or less. There are one billion nanometers in a meter.

Chip-industry experts say SMIC and other Chinese companies are not yet able to make such advanced semiconductors, and would for now need software and equipment from the U.S. and other Western countries to reach that capability.

SMIC started as a private company, but state ownership has steadily grown over time, to more than 45 percent of SMIC stock as of 2018, according to the OECD report.

SMIC's shares used to trade on the New York Stock Exchange, but the company removed its stock from the NYSE last year. The shares now trade on the Shanghai and Hong Kong exchanges.

SMIC's stock, held by some Western investors, fell 5% in Hong Kong trading on Friday.

The additions to the list also include some lesser known Chinese companies, such as NucTech, which makes luggage- and cargo-screening equipment. The Trump administration said it had determined that "NucTech's lower performing equipment impair U.S. efforts to counter illicit international trafficking in nuclear and other radioactive materials."

The administration also added several Russian entities, including OOO Sovtest Comp and Cosmos Complect, to the list, saying they appear to have used a front company to acquire "sensitive electronic components" for use in Russia, without obtaining required licenses.