China takes a hit in the chip war with the US

Micron ban risks being a self-inflicted wound for Beijing as tension between Washington increases

Just after the G7 Hiroshima Summit ended, China’s Cyberspace Administration of China issued a statement of intent.

It requested that “operators of critical information infrastructures in China should stop purchasing products made by Micron Technology” due to “national security risks.”

The United States Department of Commerce dismissed the ban issued at the weekend as “unsubstantiated,” while Micron, the biggest US memory chipmaker, said in a statement:

We have received CAC’s notice … We are evaluating the conclusion and assessing our next steps.

The news of China’s decision to block Micron after nearly two months of investigation came as a shock to the foreign business community in China. 

The company is the first US chipmaker to be targeted by Beijing after Washington in October placed export controls on some American-made components and tools for semiconductors to prevent them from being used to expand China’s military capabilities.

Security review

Michael Hart, the president of the American Chamber of Commerce in China or AmCham, said that US businesses are worried about being the next target of Beijing’s security review. Hart said in an emailed reply:

Our members are asking us two things: will they be targeted because they are American, and how can they ensure they remain compliant in a business environment that appears to be increasingly influenced by national security concerns?

Last month, representatives of AmCham China expressed concerns about the Micron case. When asked about the situation at a video news conference on April 26, Lester Ross, the chairman of the Chamber’s Policy Committee, said:

[China is] taking action against particular foreign individuals or companies … It is a major concern because China lacks transparency in many dimensions in law and policies.

Ross continued:

It is [also] a concern [for] other companies in other industries as they could suddenly be singled out without any clear evidence being presented on the basis of unclear suspicions.

Micron is a leading memory chip company. Photo: File

In recent AmCham China polls, American companies revealed they are less comfortable with the business environment in the world’s second-largest economy. 

The uncertainty comes from both last year’s Covid-19 controls and Beijing’s increasing security investigations. European firms in China are also worried, especially about the possible impact on the semiconductor supply chain.

Jorg Wuttke, the president of the European Union Chamber of Commerce in China, said on Monday in an email response to Voice of America Mandarin that it issued a report in January 2021 outlining the impact that decoupling will have on company operations. 

In this regard, he wrote:

Geopolitical and Covid-19 related factors have shone a spotlight on the fragility of global supply chains, including their susceptibility to chip shortages.

As a result, Wuttke said, the Micron case “could potentially add to these” supply chain “pressures,” adding:

European companies operating in China need to closely monitor the situation, evaluate the risk that the US-China technology competition poses to their supply chains, and make contingency plans accordingly.

Memory chip

Founded in 1978 and based in Idaho, Micron is the leading memory chip company in the US and the third-largest in the world, behind Samsung and SK Hynix in South Korea. 

Its main products are DRAM, or dynamic random access memory, and NAND Flash, or flash memory. According to the company’s financial report last year, DRAM accounts for about 73% of total revenue and flash memory accounts for 25%.

Micron’s products are used in cell phones, personal computers, and servers. Their components can be found in the automotive, industrial, and consumer markets as well. 

As the world’s biggest semiconductor buyer, China has gradually reduced its reliance on foreign-made chips as part of a push to develop self-sufficiency.

Micron has offices in Shanghai, Xi’an, and Shenzhen and a test and assembly facility in Xi’an. Because of the Sino-American trade war, China is no longer Micron’s largest market.

Xi Jinping has been flexing his muscles. Photo: Wikimedia Commons

Revenue in the country has reportedly plummeted from 57% of its global total in 2018, or about US$17 billion, to 10.8% last year, or about $3.26 billion, according to Micron’s 2022 financial report and other sources.

In an interview with VOA Mandarin, Lin Tsung-Nan, a professor at the National Taiwan University in Taipei, illustrated the challenges ahead. He said after the G7 statement on China, President Xi Jinping had to make a tough response to the Chinese people. 

Externally, based on a confrontational strategy, Xi also had to show the democratic and free world that he is capable of imposing sanctions, Lin added: 

This is a bit like the ‘Seven Wounded Fist’ in martial arts novels, which will hurt Micron and, of course, [China]. However, China should have calculated, that when it hurts, it’s not fatal.

According to the Wuxia Fandom Wiki, the skill Lin refers to “allows the user to inflict severe internal injuries on his opponent while suffering grave internal injuries at the same time.”

He stressed that even if the ban on Micron hurts the domestic market, the Chinese Communist Party would not hesitate to do this to defend its authority.

Micron’s exit

In addition, after the Micron ban takes effect, South Korea will likely play an “important but awkward” role. Lin explained that with Micron’s exit, Samsung and Hynix may fill the gap. 

This is especially true for Samsung, which has made an extensive DRAM production investment in China.

Even if Seoul is constrained by Washington, the Chinese Communist Party may exert pressure on Samsung’s factories in China for “secret deals,” according to Lin, who added:

This is Xi’s plan to kill two birds with one stone – to show China’s assertiveness, and to rope in South Korea, or to divide South Korea and the US on their China stance.

Bo Gu contributed to this report.

This is an edited version of an article, republished courtesy of Voice of America. Read the original article here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.