Fujian Jinhua Integrated Circuit has been placed on a US list of banned companies that can no longer acquire tech components, software and technology goods from the US without a special license.
The decision announced by the US Department of Commerce on Monday was prompted by "national security interests," and comes amid allegations the Chinese state-controlled chipmaker stole intellectual property from US semiconductor company Micron Technology.
"When a foreign company engages in activity contrary to our national security interests, we will take strong action to protect our national security," US Commerce Secretary Wilbur Ross said in a statement.
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Fujian and Micron have been embroiled in a patent dispute, with a court in Shanghai ruling in June this year that the US company must stop sales of more than a dozen solid-state drives, memory sticks and chips in the Chinese market.
Both actions highlight increasing trade friction between China and the US amid an effort by Beijing to make its own semiconductor industry the world leader. Fujian Jinhua was established by the government in 2016 to build a production line with technology support from Taiwan-based chipmaker United Microelectronics.
Battle for dominance
Fujian Jinhua makes so-called DRAM, the memory chips that make computers, phones and other devices run more quickly and smoothly.
The Trump administration is concerned that China's state-backed companies could one day flood markets with cheap chips, driving American companies out of business and leaving the country's military dependent on supplies from China.
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Fujian Jinhua sources its equipment primarily from US manufacturers Applied Materials, Lam Research Group and KLA-Tencor. Linley Gwennap, a chip expert and president of the Linley Group, said the sales ban will hurt China's efforts to become self-sufficient at chip making.
"It's pretty much impossible to build a leading-edge fab [semiconductor plant] without buying equipment from these American companies," Gwennap told the news agency Reuters.
And Douglas Jacobson, a Washington-based trade lawyer, told the same news agency that the move against Fujian Jinhua was unprecedented because the US "entity list" was originally intended to prevent only violations of US export laws.
"This appears to be a dramatic expansion of the use of the entity list for economic purposes," he said.
New tariffs rumors
The US ban is likely to add to existing trade frictions between the US and China, in which Washington is reportedly now set to up the ante ahead of trade talks in November.
The news agency Bloomberg reported on Tuesday that the Trump administration was preparing to announce tariffs on all remaining Chinese imports as early as December.
Citing three people familiar with the matter, Bloomberg said the punitive measures could come into effect if talks next month between presidents Donald Trump and Xi Jinping fail to ease the trade tensions.
Trump is due to meet his Chinese counterpart on the sidelines of a G20 meeting in Buenos Aires in November, where he's said to again demand a substantial reduction in China's trade surplus with the US.
In an interview with Fox News late Monday, the US president said: "I think we will make a great deal with China, and it has to be great because they've drained our country."
Washington has so far imposed tariffs on $250 billion worth of trade with China. Import tariffs of 10 percent on $200 billion worth of Chinese goods took effect in Septemberand are due to increase to 25 percent at the beginning of 2019. Tariffs on the remaining goods imports from China could be worth $505 billion, according to 2017 trade figures.
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The new tariffs, if announced in early September, would be subject to a public comment period of 60 days and could hit China exactly at the beginning of the country's Lunar New Year holiday in February.