By Leo Kelion
Technology desk editor

Publishedduration28 SeptembershareSharenocloseShare pagelinkCopy linkAbout sharingimage copyrightSMIC/Getty Images

The US Department of Commerce has written to American suppliers of China's biggest chip manufacturer, warning them of "unprecedented risks" that their products could be used by the Chinese military.

The letter reminds the firms they must apply for licences to ship controlled items to Shanghai-based SMIC.

But it does not appear that Washington has decided whether or not to add the firm to a trade blacklist.

SMIC has denied any military links.

And it said it had not received any formal notice of new restrictions from the US.

But the latest action caused Semiconductor Manufacturing International Corporation's shares to drop about 7% in Hong Kong trade.

The fall followed a steeper decline earlier this month when the Pentagon first revealed it had proposed tougher restrictions against the business, including adding it to the government's Entity List.

That would prevent any company selling goods or services to SMIC that involved US intellectual property without first getting special permission.

Such a step has already been taken against SMIC's biggest client – Huawei – which has caused major disruption to the telecoms kit-maker's business.

Chinese state media had previously reported that SMIC was among many companies that had requested a US licence to continue supplying Huawei.

But one industry analyst suggested the latest move indicated the US was increasingly focused on SMIC itself.

"Denial of US semiconductor manufacturing equipment would put SMIC at a severe disadvantage, because most of that technology comes from American sources," explained Jim Tully.

"China could aim to become self-sufficient in these technologies over the longer term, but it seems to me that it would take 10-plus years to do so.

"And in the short term, the equipment and related software SMIC already uses still needs ongoing support and maintenance from its producers."

This has led to speculation that SMIC's survival may now be at stake.