US still assessing if China's SMIC broke US rules to make Huawei chip

By Alexandra Alper and Karen Freifeld

WASHINGTON (Reuters) -The Biden administration still needs to determine whether China's top chipmaker SMIC violated U.S. export rules to produce a chip to power Huawei's Mate 60 Pro phone, a senior Commerce Department official said during a congressional hearing on Thursday.

When asked by Representative Michael McCaul if SMIC broke U.S. export rules to produce the sophisticated chip, Alan Estevez, who oversees export policy, said "potentially yes. We will have to assess."

Questions have surfaced about whether SMIC illegally obtained U.S. tools to make the chip.

The comments show the Biden administration has not yet reached a conclusion about whether the advanced semiconductor was produced legally, nearly seven months after sanctioned Chinese telecoms firm Huawei released the phone it powers.

That comes amid growing pressure from China hardliners to take action against the two companies since Huawei unveiled a new phone powered by a sophisticated chip manufactured at SMIC in August.

The Huawei Mate 60 Pro was seen as a symbol of China's technological resurgence despite Washington's ongoing efforts to cripple its capacity to produce advanced semiconductors.

The phone also prompted a review by the Biden administration to learn the details behind the chip that powers it, the most advanced semiconductor China has so far produced.

When asked about SMIC's ability to produce the chip for Huawei using American tools, Estevez said, "I can't talk about any investigations that may or may not be going. But we certainly share those concerns."

Huawei was added to a trade restrictions list in 2019 by the Trump administration over alleged sanctions violations. SMIC was added to the same list in 2020 for alleged ties to the Chinese military industrial complex. Both companies have previously denied wrongdoing.

Being added to that list usually bars U.S. companies from selling to the targeted firms, but former President Donald Trump gave the green light to shipments of certain items to both companies, allowing billions of dollars in U.S. goods to flow to them over the last few years.

The Biden administration announced new restrictions on shipments of chipmaking tools to advanced Chinese chip factories in 2022, but SMIC's top facilities did have access to them prior to the new regulations, Estevez said. "Those tools will ossify over time, and that process will be degraded."

The Biden administration is also urging allies to stop shipments of components of chipmaking tools to China, mirroring a similar U.S. move to halt their export, part of an effort to degrade Chinese chipmaking capabilities, Estevez said. It is also targeting the servicing agreements that keep older tools running, Estevez added.

(Editing by Bill Berkrot, Andrea Ricci and Cynthia Osterman)