Chinese Firm’s Loan Bid Shelved
The U.S. Export-Import Bank has effectively rejected a Chinese company’s request for a loan guarantee to buy chip-making equipment from a U.S. supplier, a victory for those who contend Uncle Sam shouldn’t subsidize China’s growing chip industry.
Ex-Im Bank Chairman Philip Merrill decided this week to put on hold a request by China’s leading semiconductor maker, Semiconductor Manufacturing International Corp., for a $769-million loan guarantee, industry and congressional sources said Thursday.
Bank spokesman Phil Cogan wouldn’t comment on any decision but said the application was “not on the agenda for next week, and it’s not scheduled to be on the agenda at any time in the future at this point.”
The loan guarantee was to be used to buy chip-making equipment from Santa Clara, Calif.-based Applied Materials Inc., one of America’s leading high-tech exporters. Applied Materials had argued that the loan would be consistent with the bank’s mission of fostering U.S. exports and would keep Shanghai-based SMIC from turning to suppliers in Japan, South Korea or Europe.
“If the U.S. is serious about its commitment to competing overseas, we believe transactions like this should be allowed to proceed,” Applied Materials spokesman David Miller said.
Micron Technology Inc., the last remaining U.S. producer of the memory chips known as DRAMs, has opposed the loan guarantee. Micron’s argument is that the U.S. government shouldn’t fund the expansion of a foreign competitor, particularly when chip manufacturers are slowing production globally amid a chip glut.
Indeed, a Micron factory built four years ago in Utah -- originally slated to employ 3,000 people -- is being used as a test facility because market conditions don’t support its start-up, according to Micron spokesman David Parker. Micron laid off 10% of its workforce last year.
“We don’t think the U.S. government should be using U.S. taxpayer money to finance the movement of semiconductor jobs to China,” Parker said.
SMIC executives in Shanghai couldn’t be reached Thursday for comment.
The political tensions surrounding the bank’s decision illustrate the growing difficulties in sorting out America’s best interests in an increasingly globalized economy. The bank is funded by Congress and helps boost exports by providing financing to foreign firms seeking to purchase American goods.
But in this case, as in others like it, the choice wasn’t clear-cut. Complicating the decision was the fact that U.S. semiconductor companies are engaged in partnerships around the world and depend on foreign sales for most of their profits.
China is the world’s fastest-growing chip market, consuming 30% of the world’s supply. But it also wants to become a world-class producer of semiconductors.
The Ex-Im Bank is required to consider the broad economic effects of any lending decision and has been attacked before for helping support foreign competitors of U.S. firms. Last year, it rejected a request to finance a sale of U.S.-made steel fabrication equipment to a Ukrainian firm, citing concerns about global steel overproduction.
Similar tensions are likely to surface more frequently in connection with China, where the bank’s efforts to increase exports and reduce the ballooning U.S. trade deficit are colliding with concerns about that nation’s growing competitiveness and Beijing’s backing for key sectors such as technology and steel.
Industry sources speculated that the bank deferred acting on the loan application to avoid a costly public showdown.
Micron, based in Boise, Idaho, had rallied some powerful supporters in Congress, including Sen. Michael D. Crapo (R-Idaho), who heads a subcommittee overseeing Ex-Im’s operations.
Crapo spokeswoman Susan Wheeler said the senator felt the bank’s decision was appropriate because there was no consensus on whether the loan guarantee was good or bad for the U.S. economy.
However, Dan Hutchinson, president of VLSI Research, a market research firm, said the China threat was exaggerated. A far greater challenge is posed by South Korea’s Samsung Electronics Co., the leading producer of DRAMs, Hutchinson said. Ex-Im Bank financing for SMIC could actually help by ensuring competition in that market, he said.
“This is more about politics than the market,” he said.
