Military-Affiliated, Publicly Listed, and Powering Global Electronics Manufacturing | Kharon The Kharon Brief

Military-Affiliated, Publicly Listed, and Powering Global Electronics Manufacturing

A company with ties to the Chinese military and produces specialized gases for the semiconductor industry, had its IPO on the Shanghai Stock Exchange in April 2023.

(Source: Created in Midjourney)

By Edmund Xu

August 22, 2023

A publicly-traded Chinese company that manufactures specialty gases for the semiconductor industry has ties to the Chinese military, a Kharon investigation has found. Peric Special Gases Co, Ltd, majority-owned by a research institute subject to U.S. Government trade restrictions, has shipped products to a U.S. company who has contracts with the Department of Defense.  The firm also sources key materials from a company linked to Xinjiang, a region where the U.S. alleges widespread human rights abuses and forced labor occur.

BIS Entity Listing of 718th Research Institute 

While Peric Special Gases Co, Ltd began trading shares on the Shanghai Stock Exchange in April of this year, the company is still ultimately majority-owned and controlled by Chinese state-owned defense company China State Shipbuilding Corporation (CSSC) through its 718th Research Institute. In 2020, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) added the 718th Research Institute to its Entity List “for acquiring and attempting to acquire U.S.-origin items in support of programs for the People's Liberation Army.” U.S. persons or companies are barred from exporting goods to, though not importing goods from, companies that appear on the Entity List without a license from the U.S. Government.

Many of the products that Peric produces, such as nitrogen trifluoride, have uses in the semiconductor and electronics manufacturing industries. Two of Peric’s top customers in China include chipmakers Yangtze Memory Technologies and Semiconductor Manufacturing International Corporation, both of whom have been included on the BIS Entity List for their support of China’s military modernization efforts.

As recently as 2023, Peric has sold nitrogen trifluoride to at least two companies involved in the electronics industry in the United States. At least one of those buyers is a supplier of liquid nitrogen to the U.S. Department of Defense’s in-house weapons systems microelectronics manufacturer. The same company was also awarded $20.02 million worth of contracts with NASA last month, including for the delivery of liquified nitrogen. It is unclear if any nitrogen trifluoride sourced from Peric is included in the products delivered to the U.S. Government.

The Use of Materials Sourced from Xinjiang 

In addition to its connections to China's defense industry, elements of Peric's products may trace back to a supplier in Xinjiang, according to corporate disclosures.

Peric's parent company, the 718th Research Institute, holds a patent for a nitrogen trifluoride manufacturing method using cells made from electrolytic nickel, according to corporate disclosures. As of 2021, China Chengtong Commodity Trade Co., Ltd., a major supplier of electrolytic nickel, made up over 10% of all of Peric’s total purchases, according to the company’s disclosures.

Chengtong Commodity Trade sources its electrolytic nickel from Xinjiang Nonferrous Metal Industry Group, a state-owned company in Xinjiang, according to securities disclosures. In the first quarter of 2022, Xinjiang Nonferrous Metal Industry sold over RMB 212 million (USD 29.7 million) worth of electrolytic nickel to Chengtong.

Xinjiang Nonferrous Metal Industry has been involved in activities that can be indicators of forced labor outlined in a June 2021 U.S. government advisory on Xinjiang. According to the U.S. government advisory, “companies operating in Xinjiang implementing nonstandard hiring practices and/or hiring workers through government recruiters” is a warning sign of involuntary transfers of ethnic minorities into forced labor conditions.

A March 2020 press release from a company involved in receiving ethnic minority laborers transfers as part of a government-supported program identified Xinjiang Nonferrous Metal Industry as a recipient of the labor transfers.

Since 2022, the Uyghur Forced Labor Prevention Act has made it illegal to import goods into the U.S. made in whole or part with materials sourced from Xinjiang, unless an importer can prove that the goods were not made with forced labor.

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