With Micron ban, China escalates microchip conflict with US

With Micron ban, China escalates microchip conflict with US

By cutting foreign tech companies out of Chinese supply chains, Beijing has long opted to work indirectly or even secretly. Regulators gave executives backstage lectures, burdened them with excessive bureaucracy, or hit them with occasional forays into the offices. Rarely did the government openly tell a company that it was no longer welcome.

But that’s what Micron Technology signaled in an ad early Sunday.

The Chinese government has banned companies that handle critical information from buying microchips made by Micron, based in Boise, Idaho. The company’s chips, which are used for memory storage in all kinds of electronics such as phones and computers, were deemed to pose “relatively serious cybersecurity issues” by China’s Internet regulator after an analysis.

Micron said it was “evaluating” the government’s finding and “evaluating” what it would do next. Analysts said the company, which has sold chips in China for years, could find itself excluded from future deals by Chinese companies.

The openness and speed with which Chinese authorities moved against Micron — they spent less than two months on the investigation — underscores how far the two sides are drifting apart on technology policy. Last year, the Biden administration took tough action to block Chinese chipmakers from accessing crucial tools needed to manufacture advanced chips, as well as access to the chips that run supercomputers and create powerful artificial intelligence algorithms.

Micron’s action, widely seen as a reprisal for those moves, shows some of China’s advantages over the United States: a swift and fearsome authoritarian government that can quickly pronounce and enforce outright bans. It also offers a glimpse into Beijing’s new tactics.

With the Micron block, the authorities opened up a space in the industry that Chinese chip makers could fill. The measure could also represent a new barrier between the United States and its allies, whose companies could earn billions of dollars in sales if they intervened and won business that Micron could lose.

For Beijing, undermining an American company that makes critical equipment advances the government’s goal of boosting its domestic technology sector.

“It may not be feasible or necessary to completely replace all products with domestic products, but for these basic products we need to develop our own capabilities and avoid being overly dependent,” said Xiang Ligang, head of a Beijing-based technology consortium that has advised the Chinese government on technology issues. “This applies not only to the chip industry, but also to other sectors,” he added.

For nearly a decade, China and the United States vied for global technological leadership. Chinese hacks into the computers of US companies and policies aimed at acquiring privately held intellectual property have raised red flags in Washington. In Beijing, revelations by Edward J. Snowden, the former US intelligence contractor, exposed the vulnerability of relying too heavily on American technology.

As each side maneuvered to find new advantages, both sides focused on the semiconductor industry. The tiny microchips that power nearly all electronics were a convenient choke point for the United States as it worked to cut off China’s access to the smallest, fastest chips. The hope was to make China’s supercomputers less intelligent and its smartphones less salable.

To counter Washington, China has lavished subsidies on domestic chip leaders. While they haven’t been able to catch up with global rivals in the more advanced chip arena, some companies have had success with less sophisticated parts, such as memory chips and the larger logic chips that run in cheaper smartphones and cars.

Then, in October, the Biden administration announced a major set of policies aimed at China’s most successful semiconductor companies. The move, along with billions in new subsidies for chip production in the United States, has been frowned upon by Chinese policymakers, said Paul Triolo, senior vice president for China at Albright Stonebridge Group, a strategic consulting firm.

“Officials in Beijing over the past few months have been complaining to anyone who will listen about US actions,” he said. “Beijing sees these movements as primarily politically motivated and is now willing to do the same,” added Triolo.

In some ways, China is better equipped for this exchange. China’s authoritarian system allows for swift action and ensures that few domestic companies will break with politics.

In the United States, political debate and legal challenges can undermine the sharpness of government efforts. Big American companies, for example, have found legal remedies to Washington’s attempts to cut sales of components to companies such as Chinese telecoms equipment maker Huawei. Some multinationals were able to lobby for licenses that would allow them to continue selling to blacklisted companies.

By targeting Micron specifically, China is hitting one of the few sectors – memory chips – where it has a foothold with its chip competition with the United States.

While protecting that success by shutting out US competitors makes strategic sense, China remains heavily dependent on the United States for advanced chips, according to Teng Tai, an economist and director of the Wanbo New Economic Research Institute in Beijing.

“The ultimate goal of retaliation against Micron is to urge certain American companies to hold back so that we can further promote technological and business cooperation and avoid a siled, self-reliant approach,” he wrote on Monday on Weibo, a social media site. Chinese outlet.

Another question that Sunday’s lawsuit against Micron raises is how US ally South Korea will respond. Its companies, Samsung and SK Hynix in particular, have a lot to gain from banning Micron. The two companies aim to win customers from Micron, which reported $3.3 billion in sales in China in 2022.

Mr. Xiang, the Chinese government adviser, said, “Why should South Korea blindly follow the United States and harm its own interests? I don’t think South Korea has that obligation.”


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