China hits back at Micron technology even as it signals opening

China hits back at Micron technology even as it signals opening

China hits back at Micron technology even as it signals opening

When senior Chinese officials hosted receptions for dozens of US and European business leaders at back-to-back annual economic forums last week, the message was clear: China is open for business.

But by the end of the week, China’s fearsome regulators had sent a completely different signal.

Beijing on Friday announced a cybersecurity review of Micron Technology, a leading US chipmaker. The move, which many industry analysts expected, is China’s most significant retaliatory blow against Washington for its campaign to cut off China’s access to high-end chips.

China’s internet watchdog said it was conducting a review of Micron’s products sold in the country to “safeguard the security of the information infrastructure supply chain.” Mao Ning, spokesperson for China’s Foreign Ministry, called the review a “normal regulatory measure” focused on products that may affect national security.

Based in Boise, Idaho, Micron Technology manufactures memory chips used in phones, computers, data centers, cars and other electronic devices. It has longstanding ties to China and is an emblem of America’s leadership position in the global semiconductor industry. But now Micron is caught in the trap of China’s drive to become self-sufficient in cutting-edge technology.

Sen. Jim Risch, a Republican from Idaho, criticized the Chinese probe into Micron, saying it was an attempt to undermine the US position in the semiconductor industry.

“This decision further helps the American people see China for what it is – an aggressor and tyrant who has never been interested in a true economic partnership,” Risch said in a statement.

Micron shares have fallen almost 6% since the news. Micron said in a statement that its operations in China were operating normally and that it was “fully cooperating” with authorities.

China’s official mixed messages reflect the tightrope on which the country’s leaders walk. They are trying to prop up a struggling economy that only recently reopened after three years of tough pandemic restrictions, while trying to present an inflexible political image to an increasingly hostile Washington. At one of last week’s parties for foreign business executives, including Apple’s Tim Cook, Li Qiang, China’s new prime minister, promised that China would continue to “open its doors more and more widely”.

“China is not shy about using various tactics to deal with foreign companies,” said Dan Wang, visiting scholar at Yale Law School and technology analyst at Gavekal Dragonomics, a research firm. “Sometimes he seems to be like, ‘Well, if you don’t like those carrots, we’ve got a big stick too.’”

China’s decision to subject Micron to scrutiny follows sweeping U.S. restrictions on China’s semiconductor industry. These measures, unveiled in October, targeted some of Micron’s Chinese competitors.

Micron opened its first factory in China in 2007, in Xi’an. The chipmaker has around 3,000 employees across the country working in customer service, sales and engineering. It has a center in Shanghai where the chips are designed, as well as branches in Beijing and Shenzhen.

“We are excited to be a growing part of China’s technology industry,” former Micron chairman Steve Appleton said in a 2007 statement.

But as China’s ambitious plan to become a global tech competitor intensified, Micron fell to the center of the country’s tech competition with the United States. In 2018, the US Department of Justice began investigating chipmakers from China and Taiwan for allegedly stealing trade secrets from Micron. One of the companies has pleaded guilty, and the case of the other is continuing.

Over the past two years, Micron has given “very clear signals” of its intention to reduce its exposure to China, said Hui He, head of China semiconductor research for research firm Omdia. technological.

“Micron has been one of the most responsive companies to US government policy,” she said, adding that the company had “a relative lack of reliance on China.”

Micron began reducing the number of Chinese employees and closing operations at its Shanghai chip design center in January 2022. Like many Western chipmakers, Micron has a strong manufacturing presence in Asia, including Singapore and Taiwan, but recently announced plans for a $100 contract. billion chip factory in New York. President Biden announced it as “one of the most important investments in American history”.

Mainland China accounted for about 11% of its sales in 2022, up from about half five years earlier, according to company reports.

In its latest earnings report in March, Micron warned investors that the Chinese government could “prevent us from participating in the Chinese market or prevent us from competing effectively with Chinese companies.” He also pointed to the competitive risks he faced from Chinese state-funded semiconductor competitors.

The action against Micron, industry analysts said, appeared to be aimed at sending a message to U.S. technology policymakers, while protecting the domestic industry. Investors in China welcomed the news, pushing shares of domestic semiconductor companies higher. Analysts said Micron’s Chinese customers were likely to transfer orders to Chinese suppliers in a bid to hedge their bets.

But the Micron case sent a wake-up call to foreign companies and left Micron’s future uncertain, said Yale Law School senior fellow Samm Sacks. She called the cybersecurity review process a “black box”.

“Not only are there no known criteria for passing it, but there’s no specific endgame that’s ever been articulated if you don’t pass it,” she said. It could have a chilling effect.

“Many companies now have a coming-to-Jesus moment,” Ms. Sacks said. “Is it worth the cost now to be in this incredibly tough market?”


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