China’s Largest Semiconductor Chip Manufacturer, SMIC, and Commercial Drone Manufacturer, DJI, Among Nearly 60 Chinese Companies Added to the U.S. Department of Commerce’s Entity List

By Keil J. Ritterpusch, Senior Compliance Associate

On December 18, 2020, the U.S. Department of Commerce’s Bureau of Industry Security (“BIS”) announced the addition of 77 foreign entities, including 59 in the People’s Republic of China (“PRC”), to the Entity List, published in Part 744 of the Export Administration Regulations (“EAR”), 15 C.F.R. Part 740.  The formal addition of the companies to the Entity List will be made official with publication in the Federal Register on December 22, 2020.  A copy of the Federal Register notice made available for public inspection can be found at https://public-inspection.federalregister.gov/2020-28031.pdf.  

Any company – U.S. or foreign – must obtain an export license from BIS for the export of any hardware, software, or technology subject to the EAR to any party named on the Entity List.  In some cases, there is a presumption of denial for exports.  The specific cases where there is a presumption of denial are specified in the Entity List published in Part 744 of the EAR.  In virtually all cases, a license is required to export even items falling under EAR99 control if a company is listed on the Entity List.

Among the 77 entities added to the Entity List, there are two companies that are particularly notable:  China’s top semiconductor chip manufacturer Semiconductor Manufacturing International Corp (“SMIC”) and affiliates, and Chinese commercial drone manufacturer and retailer DJI

In the case of exports to SMIC, there is a presumption of denial for exports of items subject to the EAR that are “uniquely required for the production of semiconductors at advanced technology nodes (10 nanometers and below, including extreme ultraviolet technology).  All other exports, including EAR99 items, require a license and will be reviewed on a case-by-case basis. 

For exports to DJI, there is a presumption of denial for all exports of hardware, software, and technology subject to the EAR, except that the export of items necessary for detecting, identifying, and treating the infectious disease will be reviewed and approvable on a case-by-case basis.  Three other of the 77 added entities include a similar allowance for the case-by-case review of exports of items used for detecting, identifying, and treating infectious diseases.

In announcing the expansion of the Entity List, Secretary of Commerce Wilbur Ross said: “We will not allow advanced U.S. technology to help build the military of an increasingly belligerent adversary.” Secretary Ross further advised:  “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.”

U.S. Secretary of State Mike Pompeo added a further comment to the additions to the Entity List, stating that “Today’s actions mark yet another sign of our resolve to use all countermeasures available” to prevent Chinese companies and institutions “from exploiting U.S. goods and technologies for malign purposes.”

While the U.S. remains dominant in the chip industry, its market lead has shrunk as companies in Taiwan and South Korea has rapidly ramped up production.  SMIC trails Taiwan Semiconductor Manufacturing Co, the industry’s market leader, in its development of the most advanced chips. It has sought to build out foundries for the manufacture of computer chips that can compete with those of TSMC.

Adding SMIC, the Shanghai-based state-owned chip maker, to the Entity List limits the company’s ability to buy key components from U.S. and foreign suppliers that are subject to U.S. export restrictions, making it difficult for SMIC to build advanced chipsets.  SMIC was also among the Chinese companies on a separate list announced by the U.S. Department of Defense earlier in December that will bar American investors from investing in these firms because of their alleged ties with the Chinese military. Under that policy, U.S. investors will have to sell their investments in SMIC by late in 2021, essentially cutting the Chinese firm off from U.S. capital.

Chinese drone giant DJI was added for enabling high-tech surveillance of the Chinese people in China, which a Commerce Department spokesperson referred to as a “human rights abuse.” 

In addition to adding SMIC and DJI, several Chinese construction companies, including China Communications Construction Co., were added as a result of their purported assistance in the militarization of disputed territory in the South China Sea.  Several Chinese universities were also added to the Entity List as a result of U.S. Government findings that the universities had aided the Chinese military in the acquisition of sensitive information to the national security of the United States.  Among the universities added were the Beijing Institute of Technology, Beijing University of Posts and Telecommunications, the Nanjing University of Science and Technology, and Nanjing University of Aeronautics and Astronautics.

The complete list of entities added to the Entity List is as follows:

BULGARIA

  • Dimitar Milanov Dimitrov;
  • Mariana Marinova Gargova;
  • Milan Dimitrov; and
  • Multi Technology Integration Group EOOD (MTIG).

CHINA

  • AGCU Scientech;
  • Beijing Institute of Technology;
  • Beijing University of Posts and Telecommunications (BUPT);
  • China Communications Construction Company Ltd.;
  • China National Scientific Instruments and Materials (CNSIM);
  • China State Shipbuilding Corporation, Limited (CSSC) 7th Research Academy;
  • China State Shipbuilding Corporation, Limited (CSSC) 12th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 701st Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 702nd Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 703rd Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 704th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 705th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 707th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 709th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 710th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 711th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 712th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 713th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 714th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 715th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 716th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 717th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 718th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 719th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 723rd Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 724th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 725th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 726th Research Institute;
  • China State Shipbuilding Corporation, Limited (CSSC) 750th Test Center;
  • China State Shipbuilding Corporation, Limited (CSSC) 760th Research Institute;
  • Chongqing Chuandong Shipbuilding Industry Co Ltd.;
  • Chong Zhou;
  • CSSC Huangpu Wenchong Shipbuilding Co., Ltd.;
  • DJI;
  • Guangxin Shipbuilding and Heavy Industry Co., Ltd.;
  • Guangzhou Taicheng Shipbuilding Industry Co., Ltd.;
  • Huisui Zhang;
  • Jiangsu Hengxiang Science and Education Equipment Co., Ltd.;
  • Jinping Chen;
  • Kuang-Chi Group;
  • Nanjing Asset Management Co., Ltd.;
  • Nanjing University of Aeronautics and Astronautics;
  • Nanjing University of Science and Technology;
  • Ningbo Semiconductor International Corporation (NSI);
  • ROFS Microsystems;
  • Semiconductor Manufacturing International (Beijing) Corporation;
  • Semiconductor Manufacturing International Corporation (SMIC);
  • Semiconductor Manufacturing International (Shenzhen) Corporation;
  • Semiconductor Manufacturing International (Tianjin) Corporation;
  • Semiconductor Manufacturing South China Corporation;
  • SJ Semiconductor;
  • SMIC Holdings Limited;
  • SMIC Northern Integrated Circuit Manufacturing (Beijing) Co., Ltd.;
  • SMIC Semiconductor Manufacturing (Shanghai) Co., Ltd.
  • Tianjin Micro Nano Manufacturing (MNMT);
  • Tianjin University;
  • Tongfang NucTech Technology Ltd.
  • Wei Pang; and
  • Zhao Gang.

FRANCE

  • France Tech Services; and
  • Satori Corporation.

GERMANY

  • Maintenance Services International (MSI) GmbH; and
  • MRS GmbH.

HONG KONG

  • SMIC Hong Kong International Company Limited.

ITALY

  • Zigma Aviation.

MALTA

  • Feroz Ahmed Akbar; and
  • Sparx Air Ltd.

PAKISTAN

  • Geo Research, and
  • Link Lines (Pvt.) Limited.

RUSSIA

  • Cosmos Complect;
  • Ilias Kharesovich Sabirov; and
  • OOO Sovtest Comp.

UNITED ARAB EMIRATES

  • Satori Corporation; and
  • Sky Float Aviation FZE.