US sanctions against Fujian Jinhua will force the Chinese state-owned company accused of stealing trade secrets from American memory chipmaker Micron to stop production by March, according to people familiar with the situation.
The case, under which the US commerce department in October practically banned all exports and technology transfers to Fujian Jinhua, is one of the clearest outcomes yet of Washington’s war on the rise of China’s tech sector.
Fujian Jinhua is rapidly running out of imported materials vital for keeping its fabrication plant running as a result of Washington’s export ban, according to two people close to Jinhua and United Microelectronics (UMC).
“They have come farther in ramping up yield than they are being given credit for but now they’ve pretty much reached the end of the road,” said one person involved in setting up UMC’s partnership with Jinhua.
The US Justice Department filed criminal charges late last year against Fujian Jinhua for allegedly conspiring to receive Micron technology through UMC, a Taiwanese contract chipmaker that is also a defendant in the criminal case.
Micron alleges that former employees of a company acquired by Micron left to join UMC, from where they handed technology belonging to the US chipmaker to Fujian Jinhua. UMC and Fujian have denied the allegation.
Industry experts see the case as a key battle in Washington’s effort not only to stop theft and forced technology transfer by China but also to prevent it from becoming a tech power rivalling the US.
Beijing is pushing the development of an indigenous chip industry with immense government subsidies. But analysts warn that the US’s stand-off with China is slowing the sector’s momentum.
TrendForce, a technology industry research firm, forecast that the growth of China’s semiconductor industry will drop to 16 per cent this year, the slowest since 2013.
More than 200 of the about 300 engineers UMC originally sent to work at Jinhua have returned home, leaving the Chinese company lacking vital experience on ramping up and running production of dynamic random-access memory, or Dram.
Two of the returnees, who now work at another memory chipmaker in Taiwan, said some of the Taiwanese engineers left Jinhua immediately after the US criminal charges in early November. But the majority had followed over the past two months under advice from UMC, their former employer.
UMC, due to report earnings on Tuesday, said immediately after introduction of the US sanctions against Jinhua that it was suspending its partnership with the Chinese company.
Washington sees Jinhua’s woes as proof that its policy of singling out and prosecuting Chinese companies accused of technology theft is yielding results.
“The naming and shaming is working, as are the indictments,” said a US official. “There appears to be some fear among the Taiwanese engineers of the legal risks of working there, and hopefully it will deter others from going down that path.”
The official said the Justice Department was likely to eventually drop the criminal charges against UMC and settle for a large fine in exchange for the Taiwanese company’s co-operation. A source close to UMC said the company also expected to negotiate a fine.
The Micron case is one of several in which Chinese firms are accused of illegally pursuing other companies’ technology by co-opting Taiwanese staff.
The US wants Taiwan law enforcement agencies to focus more on that issue. The American Institute in Taiwan (AIT), Washington’s quasi-embassy in Taipei, is working to organise workshops this year on the protection of trade secrets and intellectual property rights.
“In the past, most events were focused on economic or social topics, but we thought we really should move into law enforcement because the economic espionage issue is so important,” said a US official familiar with the plans.
