China bans sales with America’s biggest maker of memory chips, Micron. Here’s why

• The Cyberspace Administration of China found that Micron “posed significant security risks to China’s critical information infrastructure supply chain.”
• It is “critical for national infrastructure operators” to stop purchasing products from the US chipmaker.
• Experts reckon Micron presented an obvious first target for Beijing as its tech would be more easily replaced with competitors’ chips from South Korean rivals Samsung and SK Hynix.

More than a month ago, on April 1, the government of China declared that it had opened an investigation into the United States’ largest memory chip maker, Micron Technology, citing national security risks. The investigation, announced in a brief statement by the Cyberspace Administration of China (CAC), bears striking similarities to allegations made by the US against Chinese telecom equipment vendor Huawei Technologies Co.

Micron automatically became the first foreign semiconductor company to be put under a cybersecurity review by China months after the American tech firm closed its DRAM design operations in Shanghai at the end of last year. 

On March 31, the CAC said it launched an investigation into Micron’s products in China to “safeguard key information infrastructure supply chain security” and “prevent cyberspace security risks due to problematic products.” In response, the Boise, Idaho-based company said it was “in communication with the CAC and cooperating fully.” 

After all, the company has little to no choice but to be “committed to conducting all business with uncompromising integrity” and stand by its products’ security. At that point, the CAC’s move was enough to heat tensions between Beijing and Washington, following numerous US-led initiatives to tighten exports of advanced chips and semiconductor manufacturing equipment to China. 

Fast forward to May 21, China declared that Micron Technology’s products posed “serious network security risks” and proceeded to ban operators of crucial infrastructure from buying them. The move follows the seven-week investigation, and the results are now widely seen as retaliation for US efforts to snuff out Chinese competition in the semiconductor and telecommunications space.

Why did China target Micron?

Before the cybersecurity review of Micron was announced, Beijing had not taken any significant steps to hit back at the US for implementing stringent restrictions on advanced chip exports to China on the grounds of national security. The Chinese government has also perceived Micron as “playing a negative role” in the country’s technology industry, Wang Lifu, an analyst at Shanghai-based semiconductor research firm ICwise, told South China Morning Post.

Micron was said to be among several US semiconductor firms that increased their lobbying spending since the Biden administration enacted the CHIPS and Science Act in August last year, offering US$52 billion in federal funding for chip production in the US. Months before that legislation became law, Micron announced the closing of its Shanghai chip design center at the end of 2022. It offered 150 Chinese engineers relocation packages to the US or India.

In a statement on its official social media site on Sunday, the CAC said the problems posed by Micron could “seriously endanger the supply chain of China’s critical information infrastructure” and threaten national security. However, experts view the move by CAC as a double-edged sword as it also deals with the risk of further sanctions by Washington that could eventually cut off important Chinese companies from Micron’s memory chips.

What is more obvious is the fact that Micron presented an obvious first target for Beijing as its tech would be more easily replaced with competitors’ chips from South Korean rivals Samsung and SK Hynix. Micron itself has previously warned of the risks of being excluded from the China market. 

In its 2021 financial report, Micron said Beijing’s support for domestic DRAM makers could restrict its growth. Unlike semiconductor equipment from ASML or graphics chips from Nvidia, Micron’s products can be easily replaced in China with local suppliers such as Yangtze Memory Technologies Co and Korean firms Samsung and SK Hynix.

To put into context the role the country as a market plays for Micron, Mainland China and Hong Kong alone generated 25% of its US$30.8 billion in revenue last year, Financial Times noted. We can expect South Korea to take notice of the CAC’s cybersecurity review of Micron, according to Wang. 

He told SCMP that for the Korean memory chip makers Samsung Electronics and SK Hynix, which still have manufacturing facilities in China, the investigation provided a cautionary sign not to follow US actions, he said. “We have received the CAC’s notice of conclusion of its review of Micron products sold in China,” Micron said in a statement.

“We are evaluating the conclusion and assessing our next steps. We look forward to continuing to engage in discussions with Chinese authorities.”

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