When Washington introduced sweeping controls restricting exports of chips and equipment to China in October, Beijing accused it of “harassing” its tech sector and “violating the spirit of cooperation.”
Such responses, little more than verbal bluster in response to a slow choking of semiconductor supplies, reflected the Chinese industry’s dependence on foreign chip technology and the need to be cautious about retaliatory measures.
But Beijing finally went on the offensive earlier this month when the Cyberspace Administration of China announced a national security probe into Idaho-based memory chipmaker Micron Technology. The CAC announced it would screen imports of Micron products to ensure the security of its information infrastructure.
Industry insiders say Micron, which generates 11 percent of its sales in mainland China and another 5 percent in Hong Kong, was an obvious first target for Beijing as its technology would be more easily replaced by chips from competitors if China ultimately opted for a ban would decide it. The US group had also downsized some of its mainland operations while increasing investments in the US.
However, industry experts believe further retaliation will be limited as China relies on Nvidia artificial intelligence chips and other processors from Intel and Qualcomm.
Mark Li, senior semiconductor analyst at Bernstein, said, “Memory chips are standardized, so it’s easy to switch suppliers from US to non-US,” adding that South Korean conglomerates Samsung and SK Hynix have most of Micron’s orders in would settle China.
Beijing views Micron as “an unfriendly role in the country’s semiconductor industry,” said Wang Lifu, a chip analyst at Shanghai-based research group ICwise. He cited Micron’s legal action against Chinese competitors for intellectual property theft and its perceived role in “lobbying Washington to impose sanctions on China.”
Paul Triolo, a China technology expert at consulting firm Albright Stonebridge, said Micron was seen as “supporting specific controls” that “severely constrained China’s storage leader YMTC [Yangtze Memory Technologies Corp] and CXMT [ChangXin Memory Technologies] from sourcing semiconductor manufacturing equipment to remain competitive in the memory sector”.
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Last year, the US restricted exports of technology used to make NAND memory chips with 128 layers or more — the level of YMTC’s most advanced chips.
Shares of Chinese memory chip makers rebounded this month on news of the Micron probe, but analysts say domestic rivals won’t get a big boost from the probe. “There is no Micron equivalent in China. There are only small storage companies producing trailing and niche products,” Li said.
“We are in communication and fully cooperating with the CAC,” Micron said in a statement. “Product shipping, engineering, manufacturing, sales and other functions are working as usual. Micron is committed to conducting all business with uncompromising integrity and we stand by the safety of our products and our commitments to customers.”
Carolyn Bigg, head of the cyber security team at Hong Kong law firm DLA Piper, said that “launching a cyber security investigation against a company related to other underlying issues is a well-worn path for Chinese authorities.”
The CAC investigation could result in Micron limiting its operations in China. Unlike in Europe, where companies are fined for violating cybersecurity rules, in China they could also “lose their operating license or take their platforms offline,” she said.
Analysts say the commercial impact on Micron would be limited if it were banned from the Chinese market. “Micron can easily redirect somewhere else. Memory chips are standardized, so chips reserved for Lenovo, for example, could easily be redirected to Dell,” Li said.
Last year, Micron closed a dram chip development division in Shanghai whose engineers were reportedly asked to relocate to the US or India. It also announced a $20 billion investment in a new U.S. chip fab to refocus its global manufacturing, moving most advanced production back to the U.S.
However, the company still employs around 3,000 people in China, most of them at an assembly and testing facility in the central Chinese city of Xi’an.
Longer term, industry insiders say this is a clear signal from Beijing for its tech industry to accelerate efforts to de-Americanize its supply chains. “People are talking about a cold war. It’s clear that Chinese tech companies have no choice but to find other sources of supply where they can,” said a senior executive at a Chinese artificial intelligence group.