US-China tech war: Washington’s latest unverified list hits at the most vulnerable parts of China’s technology supply chain

The addition of Chinese entities to an export watch list by the US government last week sparked alarm in Beijing, as the move tightened the stranglehold on China’s technological supply chain by striking at its most vulnerable parts.
The US Commerce Department added 33 Chinese entities to its unverified list (UVL), citing the inability to verify their end users. These entities include laser component and pharmaceutical manufacturers, government research labs, and two universities. To do business with US suppliers, Chinese companies on the list must provide additional documentation and undergo other checks.
According to Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, the move has “created new shocks to the supply chain’s stability.”
The list would drive a wedge between China and the United States, he said, because it would “affect future international economic cooperation and harm the interests of all parties.”

The UVL is different from the more well-known Entity List, which restricts access to US exports unless the exporter obtains a licence. China’s largest chipmaker, Semiconductor Manufacturing International Corp. (SMIC), and Huawei Technologies, the country’s largest telecommunications infrastructure builder, are among the 300 Chinese companies on the Entity List.
The new names on the UVL aren’t household names like SMIC or Huawei, but they’re part of a group of industrial and technology companies Beijing is counting on to help China survive, if not win, its technology rivalry with the United States.
Shanghai Micro Electronics Equipment (Group) is at the heart of China’s drive to become self-sufficient in semiconductor production, and it is the country’s best hope for producing lithographic machines, which are essential in semiconductor production.

The only pharmaceutical company on the list, Wuxi Biologics, is researching and conducting clinical trials for Covid-19 antibody drugs. In China’s aviation industry, AECC South Industry and China National Erzhong Group Deyang Wanhang Die Forging are important suppliers.
While it’s unclear how much these companies rely on US components or software to stay afloat, it’s clear that China’s access to US solutions in these key areas will be harmed.
Even though it is not an outright ban, Gary Ng, senior economist for Asia Pacific at investment bank Natixis, believes that inclusion on the UVL will make the process of acquiring certain US technologies longer and more complicated due to the additional paperwork.

The only pharmaceutical company on the list, Wuxi Biologics, is researching and conducting clinical trials for Covid-19 antibody drugs. In China’s aviation industry, AECC South Industry and China National Erzhong Group Deyang Wanhang Die Forging are important suppliers.
While it’s unclear how much these companies rely on US components or software to stay afloat, it’s clear that China’s access to US solutions in these key areas will be harmed.
Even though it is not an outright ban, Gary Ng, senior economist for Asia Pacific at investment bank Natixis, believes that inclusion on the UVL will make the process of acquiring certain US technologies longer and more complicated due to the additional paperwork.

ChuZhou HKC Optoelectronics Technology, which gets about 40% of its glass substrates from a US supplier, is one of the top three Chinese LCD panel makers, challenging South Korean competitors’ dominance.
Zhuzhou CRRC Special Equipment Technology, one of Hunan’s “specialised, refined, unique, and innovative” companies, has produced technology and specialty equipment that has been widely used in high-speed rail systems, urban transportation systems, and factory automated production systems.
China’s Commerce Ministry said last week that the US has weaponized its export control regulation for “political repression” and “economic bullying,” adding that the move is harmful to both Chinese and US interests.
According to Cui Fang, a professor at the University of International Business and Economics’ School of International Trade and Economics in Beijing, the US government has been generalising the concept of national security to increase trade restrictions in recent years.
Investors in publicly traded companies linked to some of the named entities rushed to liquidate their positions. Wuxi Biologics, a Hong Kong-listed company, dropped more than 34% on Thursday, though some analysts thought the drop was exaggerated.
In a research note, Morningstar’s senior equity analyst Jay Lee said, “Looking at Wuxi’s long-term business model, its fortunes lie on the customer side, not the supplier side.” “Even if we imagine a hypothetical scenario in which Wuxi is prohibited from purchasing US technology for an indefinite period of time, we believe it will eventually overcome the disruption and find new suppliers.”
Companies on the UVL could, in theory, be removed under certain circumstances. The US government removed 40 entities from the list in October 2020, including several Chinese schools and institutions.

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