China’s largest semiconductor maker has been declared a Chinese military supplier by the Pentagon, blacklisted by the Commerce Department and added to a Treasury Department list banning Americans from trading its shares. 

Still, its business with the U.S. is booming. 

Semiconductor Manufacturing International Corp. last year grabbed a record $1.5 billion in revenue—a fifth of its overall sales—from American semiconductor-design companies that hire SMIC to make their chips. In May, droves of U.S. semiconductor industry executives packed a celebratory opening of the Chinese state-backed company’s office in Irvine, Calif.

“I still hope that one day we will see SMIC will build a fab right here in the United States,” said Roawen Chen, a senior vice president at the chip-design company Qualcomm, referring to a chip-making plant. His comment drew applause from the crowd and a “thank you” from SMIC’s co-chief executive, according to a video of the event. 

The comment was made in jest, a Qualcomm spokeswoman said. The video was originally posted on YouTube by an events company, but after a while,  the settings of this video were changed to restrict who could view it.

A video image shows Roawen Chen of Qualcomm speaking at the May opening of SMIC’s Irvine, Calif., office. PHOTO: SMIC

Despite being blacklisted, SMIC plays an integral role in the U.S. semiconductor industry, with the Commerce Department, which administers export controls, granting licenses to the American companies to work with the Chinese company. That dynamic puts SMIC at the center of a debate over where to draw the line between protecting U.S. national security and doing business with China.

SMIC is a linchpin in China’s ambitions to build a leading semiconductor industry and end reliance on imports. The company churns out older generations of chips and buys significant amounts of specialized chip-making machinery from the U.S. But SMIC aspires to join the sector’s advanced ranks—a goal U.S. restrictions are meant to hobble.   

Security hawks, including influential members of Congress, argue that current U.S. restrictions are porous. By allowing SMIC access to American technology, know-how and money, they say, the U.S. is helping the company acquire cutting-edge capabilities and produce chips that China’s military could use to fight the U.S. and its allies. 

The Biden administration counters that the restrictions keep leading technologies out of the hands of SMIC, and that the U.S. should balance national security with allowing other business to go unimpeded.

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