Trump Blacklists More China Tech Companies Days Before Xi Summit

Jenny Leonard and Shawn Donnan
Trump Blacklists More China Tech Companies Days Before Xi Summit

(Bloomberg) -- The U.S. put five more Chinese tech entities on a trade blacklist just days ahead of a high-stakes summit between President Donald Trump and Chinese leader Xi Jinping even as it offered a quiet olive branch by postponing a potentially provocative speech.

The move on Friday to list four companies and a research institute involved in China’s super-computing efforts follows the similar blacklisting of Chinese telecommunications giant Huawei Technologies Co. last month, blocking it from buying U.S. software and components.

The Huawei action has raised fears that a trade war launched last year is turning into a broader economic conflict focused on cutting off China from U.S. technology while also forcing U.S. companies to shift their supply chains out of China.

The Commerce Department action against the super-computing entities will only add to those concerns in Beijing. But it also comes as the two sides try to avoid an escalation in their trade war that many see as the greatest risk to an already-slowing global economy.

Trump earlier this week announced he and Xi would meet on the sidelines of the June 28-29 Group of 20 summit in Japan in an effort to restart trade talks that broke down last month. In an apparent peace gesture the White House on Friday confirmed it postponed a speech critical of China’s human rights record by Vice President Mike Pence that had been scheduled for Monday as a result of progress in the discussions with Beijing.

Rights Speech

Trump and Pence decided the speech should be delivered after Trump and Xi speak in Japan, a White House official said. The speech already had been postponed from June 4, the anniversary of the Tiananmen Square massacre.

The twin actions illustrated some of the competing tensions inside the administration on China. While some are eager to see Trump reach a deal with Xi that would remove a drag on the U.S. economy going into the 2020 election cycle others in the administration are more intent on proceeding with a multifaceted crackdown on China. Trump has threatened to impose tariffs of up to 25% on a further $300 billion in Chinese goods on top of the $250 billion already subject to import taxes.

In a statement on Friday, the Commerce Department said the new entities listed were part of China’s efforts to develop supercomputers. It said they raised national security concerns because the computers were being developed for military uses or in cooperation with the Chinese military.

The Chinese embassy in Washington didn’t respond to a request for comment.

“While Huawei gets attention, the most important sector for U.S.-China economic competition is semiconductors,” said Derek Scissors, a China expert at the American Enterprise Institute, who informally advises the Trump administration. “Coming a week before the president meets Xi Jinping, it’s a welcome sign the U.S. won’t trade advanced technology for Chinese commodities purchases.”

Among those added to the blacklist were AMD’s Chinese joint-venture partner Higon, Commerce said in the statement. Also included were Sugon, which Commerce identified as Higon’s majority owner, along with Chengdu Haiguang Integrated Circuit and Chengdu Haiguang Microelectronics Technology, both of which the department said Higon had an ownership interest in.

The ban affects AMD’s Chinese joint venture THATIC, which was established in 2016. AMD uses THATIC to license its microprocessor technology to Chinese companies including Higon.

THATIC, or Tianjin Haiguang Advanced Technology Investment Co., is a Chinese holding company comprising an AMD joint venture with two entities, according to an AMD regulatory filing. THATIC provides chips to Sugon, a Chinese server and computer maker.

Lisa Su, AMD’s chief executive officer, said at a recent conference in Taiwan that AMD would not license its newer technologies to Chinese companies. “We are currently evaluating the addition of five new entities,” AMD spokesman Drew Prairie wrote in an email on Friday. “AMD will comply with the regulations governing that list, just as we have complied with U.S. laws to date. We are reviewing the specifics of the order to determine next steps related to our joint ventures with THATIC in China.”

The blacklisting requires American companies doing business with the Chinese firms to get a license from the U.S. government in order to sell their products. The policy for granting such licenses is that there’s a presumption of denial of such a request, according to the Commerce Department statement.

"Sugon is going to be pinched," said Anand Srinivasan, an analyst at Bloomberg Intelligence. "The THATIC joint venture may have been to grease AMD’s entry into China. It was to appease the Chinese to give them a bit of intellectual property to expand their capabilities. For AMD, it is a high-margin business, but it is not material."

The U.S. said on Friday that Sugon is “involved in activities determined to be contrary to the national security and foreign policy interests of the United States.”

Sugon is open about its work with the Chinese government. The company hopes to “gradually build a cloud data service network covering hundreds of cities and sectors to provide a wealth of intelligent applications and services for the government, industry and the general population,” according to its website.

Sugon had the largest share of China’s supercomputer market from 2009 to 2016, according to the company’s website.

The fifth entity is the Wuxi Jiangnan Institute of Computing Technology, which Commerce said was owned by the People’s Liberation Army’s 56th Research Institute. That institute’s mission, according to Commerce, is “to support China’s military modernization.”

The notice will be published in the federal register on Monday, making it an official directive.

(Updates throughout with Pence speech postponement and context.)

--With assistance from Jennifer Jacobs, Mark Gurman and Alistair Barr.

To contact the reporters on this story: Jenny Leonard in Washington at jleonard67@bloomberg.net;Shawn Donnan in Washington at sdonnan@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor

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