Shares of China’s chief chipmaker plunge after co-CEO departs without warning

Semiconductor Manufacturing International Corp. plunged almost 10% Wednesday after disclosing it’s looking into reports about the surprise resignation of a top executive.

China’s largest chipmaker said it’s trying to reach co-Chief Executive Officer Liang Mong Song after online media outlets circulated a resignation letter they said originated with the industry veteran. Liang quit after SMIC appointed a vice chairman to the board without consulting him, according to the reports. The company is now attempting to clarify his intentions, it said in an exchange filing without elaborating. Liang couldn’t immediately be reached for comment.

SMIC’s Shanghai shares dropped 7.2% after trading as much as 9.8% lower, the most intraday in three months. Its stock was suspended from trading in Hong Kong. Liang handed in his resignation after learning about the appointment of Chiang Shang-yi — a former senior executive at larger rival Taiwan Semiconductor Manufacturing Co. — to the board, media including Taiwan’s Digitimes reported.

Liang, a fellow TSMC alumnus, was considered integral to SMIC’s efforts to become a major player in the business of fabricating wafers for global tech giants. The Shanghai-based firm, a supplier to Qualcomm Inc. and Broadcom Inc., lies at the heart of Beijing’s intention to build a world-class semiconductor industry and wean itself off a reliance on American technology. But it’s now also among a plethora of Chinese corporations Washington has labeled a national security threat, a designation that threatens to cripple its longer-term ambitions by denying it access to crucial gear and circuitry.

“SMIC’s recent technology progress was directly attributable to Liang,” Bernstein analysts including Mark Li wrote. “Though the addition of Chiang is a positive, as the vice chairman his role is advisory. Liang, however, has been personally leading SMIC’s technology development and his contribution directly resulted in the mass production of 14nm, for example. Considering them both, we believe Liang’s departure will have a bigger effect, and SMIC’s future technology progress may see a setback.”

Chinese tech companies including Huawei Technologies Co. have been caught in the middle of worsening tensions between the two countries, which have clashed on a multitude of issues ranging from trade to the coronavirus pandemic and a Beijing-imposed security law for Hong Kong.

In response to the widening U.S. crackdown, China is planning to provide broad support for so-called third-generation semiconductors in its next five-year plan to increase domestic self-sufficiency in chip manufacturing, according to people with knowledge of the matter.

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