Shanghai Microelectronics Threat Overview
Shanghai Microelectronics scores as an ELEVATED RISK in the November 2023 Chip Risk Monitor for investment and supply relationships with entities tied to the Chinese government and military.
Shanghai Microelectronics has been placed on the Department of Commerce’s Entity List.
Background
Shanghai Microelectronics Equipment (Group) Co., Ltd. (SMEE for short) is China’s leading lithography machine manufacturer. A State-owned company, it was initially established with the backing of the Shanghai Science and Technology Innovation Department.
Shanghai Microelectronics is a State-owned entity controlled by a military-tied company. Shanghai Microelectronics also has supply relationships with other companies with military ties. In 2022, Shanghai Microelectronics was added to the Department of Commerce’s Entity List for acquiring and attempting to acquire US-origin items in support of China’s military modernization.
Objective Risks
As China’s major lithography machine manufacturer, Shanghai Microelectronics plays a critical role in the PRC’s efforts to develop a domestic semiconductor value chain, including with military applications. Shanghai Microelectronics is also a State-owned entity controlled by a military-tied company. And Shanghai Microelectronics has supply relationships with other companies with military ties.
Ownership Risks
Shanghai Microelectronics’s largest and controlling shareholder is Shanghai Electric, a State-owned company under the Shanghai SASAC. Shanghai Electric is a, if not the, leading Chinese equipment manufacturer. It specializes in smart energy, smart manufacturing, and smart infrastructure. Shanghai Electric also produces special military products such as radar, ships, aerospace, and wind tunnels.
Shanghai Microelectronics’s major shareholders also include Zhangjiang Hi-Tech via its subsidiary Shanghai Zhangjiang Haocheng Venture Capital Co., Ltd. Zhangjiang Hi-Tech’s original focus was the development of the Zhangjiang High Tech Industry Park, a national high-tech park. It includes the National Shanghai Biomedical Technology Industrial Base, the National Information Industry Base, the National Integrated Circuit Industry Base, the National Semiconductor Lighting Industry Base, the National 863 Information Security Achievements Industrialization (Eastern) Base, the National Software Industry Base, and the National Software Export Base. Other semiconductor companies in the Zhangjiang High Tech Industry Park include SMIC, which has been placed on the Department of Commerce’s Entity List and the Department of the Treasury’s Chinese Military-Industrial Complex List.
Supply Risks
Shanghai Microelectronics appears to supply military-tied Chinese entities. In a recent example, in 2023, Shanghai Microelectronics won the bid to supply lithography machines for Zhuhai Tiancheng Advanced Semiconductor Technology Co., Ltd. Zhuhai Tiancheng is a semiconductor manufacturing company majority-owned by a Chinese military company. Zhuhai Tiancheng was established in April 2023 by a consortium of PRC State champions: Xi’an Microelectronics Technology Research Institute; China Times Yuanwang Technology Co., Ltd; Zhongxing Xin Communications Co., Ltd, a subsidiary of ZTE; the Shenzhen Municipal Government Innovation Investment Group Co., Ltd; and Zhuhai Gejin No. 6 Equity Investment Fund Parntership, a subsidiary of Gree Group.
Xi’an Microelectronics, which holds a 53 percent stake, is affiliated to the Ninth Research Institute of China Aerospace Science and Technology Corporation and the founding unit of ZTE. ZTE has been identified by the US Department of Defense as a Chinese military company; China Aerospace Science and Technology Corporation has as well and is on the Department of Commerce’s Entity List.