The Trump administration has told American chip makers that they must obtain individual licenses before selling certain technology to Semiconductor Manufacturing International Corporation (SMIC) - the largest silicon chip maker in China.
The directive, which could escalate the technology conflict between the two countries, came in a letter from the Commerce Department last week. The letter stated there was a risk that the Chinese government could use technologies supplied to SMIC or its subsidiaries for military purposes.
According to the Wall Street Journal, the Pentagon has concerns over SMIC's suspected links with the Chinese military, and Beijing's practice of using private firms to advance its military aims. The Department of Defence said earlier this month that it was working with other federal agencies to determine whether there was a need to ban SMIC over its alleged ties with the Chinese military.
The accusations against SMIC came after US defence contractor SOS International said in a report that SMIC researchers were using American equipment to develop new technologies for the Chinese military.
In a statement, the Commerce Department said that it was "constantly monitoring and assessing any potential threats to US national security and foreign policy interests," and would take appropriate measures as warranted.
In a statement, SMIC said it had no relationship with the Chinese armed forces and that it "does not manufacture for any military end users or end uses". The company also said that it was continuing to engage with the US Department of Commerce.
The Trump administration's latest move threatens to cut off SMIC from crucial US software and other technology that it needs to make its products. According to analysts, SMIC is crucial for Beijing to end its reliance on American firms in the chip manufacturing area.
Experts also see the latest decision against SMIC as part of the current administration's on-going efforts to crack down on Chinese tech firms that it deems are a threat to national security.
In May, the US tightened restrictions on Chinese tech giant Huawei, by banning suppliers of software and manufacturing equipment worldwide from using American technology to manufacture components for the Chinese company without first obtaining a government license.
To comply with US government directives, TSMC announced in July that it would not supply chips to Huawei after 14th September.
Last month, Huawei announced that it would stop production of its most advanced Kirin chipsets from September, due to the growing impact of US sanctions.
In August, the US Commerce Department added 38 Huawei affiliates to its list of companies that are considered to pose threats to the national security.
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