A man wearing a face mask uses his mobile phone as he walks past a Huawei store in Beijing, China, May 16 2020. Picture: WANG ZHAO / AFP
A man wearing a face mask uses his mobile phone as he walks past a Huawei store in Beijing, China, May 16 2020. Picture: WANG ZHAO / AFP

New York/Beijing — China says new US export restrictions targeting companies including Huawei Technologies might threaten the global supply chain.

Beijing opposes the new US rules and will take all necessary measures to defend the rights and interests of Chinese companies, the ministry of commerce said on Sunday. It urged Washington to help create conditions for normal trade and co-operation between enterprises.

The US on Friday moved to prevent sales to Shenzhen-based Huawei by chip makers using American technology. The commerce department said it will require licences before allowing US equipment to be used by the Chinese company or its 114 subsidiaries, including its chip-design unit HiSilicon.

The move is designed to inhibit Huawei from producing and designing its own chips, a senior department official said. US officials accused Huawei of being a security threat tied to the Beijing government, an allegation the company denies.

The new rules require any foreign chip maker that uses US gear to get a licence before they can sell to companies on a US blacklist, a roster that includes Huawei and other prominent Chinese tech giants such as SenseTime Group and Megvii Technology.

Reuters reports that China’s foreign ministry said on Saturday the US should stop the “unreasonable suppression” of Chinese companies such as Huawei, and a Chinese newspaper said the government is ready to retaliate against Washington.

Retaliatory measures

The Trump administration on Friday moved to block global chip supplies to blacklisted telecom equipment company Huawei Technologies, spurring fears of Chinese retaliation and hammering shares of US producers of chip-making equipment.

China will firmly defend its companies’ legal rights, the foreign ministry said in a statement in response to Reuters’s questions on whether Beijing will take retaliatory measures against the US.

China’s Global Times newspaper on Saturday quoted a source close to the Chinese government as saying Beijing is ready to take a series of countermeasures against the US, such as putting US companies on an “unreliable entity list” and imposing restrictions on US companies such as Apple, Cisco Systems and Qualcomm.

The newspaper, published by the People’s Daily, the official newspaper of China’s ruling Communist Party, said the source also mentioned halting the purchase of Boeing aircraft.

“China will take forceful countermeasures to protect its own legitimate rights” if the US moves forward with the plan to change rules and bar essential suppliers of chips, including Taiwan-based TSMC, from selling chips to Huawei, the Global Times quoted the source as saying.

Delay plans

Tensions between the world’s two largest economies have spiked in recent weeks, with officials on both sides suggesting a hard-won deal that defused a bitter 18-month trade war could be abandoned months after it was signed in January.

In addition to the move on Huawei, the US Federal Retirement Thrift Investment Board, which oversees billions in federal retirement dollars, last week also said it will indefinitely delay plans to invest in some Chinese companies that are under scrutiny in Washington.

“This action puts America first, American companies first, and American national security first,” a senior commerce department official told reporters on Friday.

News of the move against the firm hit European stocks on Friday as traders sold into the day’s gains, while shares of chip equipment makers such as Lam Research and KLA closed down 6.4% and 4.8%, respectively, in US trading.

The commerce department’s rule, effective Friday but with a 120-day grace period, also hits Taiwan Semiconductor Manufacturing, the biggest contract chip maker and key Huawei supplier that announced plans to build a US-based plant on Thursday.

TSMC said on Friday it is “following the US export rule change closely” and working with outside counsel to “conduct legal analysis and ensure a comprehensive examination and interpretation of these rules.

“The department said the rule is aimed at preventing Huawei from continuing to undermine its status as a blacklisted company, meaning suppliers of US-made sophisticated technology must seek a US government licence before selling to it.

“There has been a very highly technical loophole through which Huawei has been able, in effect, to use US technology with foreign fab producers,” commerce secretary Wilbur Ross told Fox Business Network on Friday, calling the rule change a “highly tailored thing to try to correct that loophole”.

The company was added to the commerce department’s “entity list” last year due to national security concerns, amid accusations from Washington that it violated US sanctions on Iran and can spy on customers. Huawei has denied the allegations.

Frustration among China hawks in the administration that Huawei’s entity listing was not doing enough to curb its access to supplies prompted an effort to crack down on the company that culminated in Friday’s rule.

Washington lawyer Kevin Wolf, a former commerce department official, said the rule appears to be a “novel, complex expansion of US export controls” for chip-related items made with US technology abroad and sent to Huawei. But he said that chips designed by companies other than Huawei and manufactured with US technology could still be sold to the company without the licence requirement.

While the new rules will apply to chips regardless of their level of sophistication, a senior US state department official who also briefed reporters on Friday opened the door to some flexibility for the company, echoing reprieves granted to Huawei by the Trump administration previously.

“This is a licensing requirement. It does not necessarily mean that things are denied,” the official said, adding that the rule gives the US government greater “visibility” into the shipments.