Cybersecurity review of Micron is Beijing's most significant stroke of retaliation against Washington: NYT

Beijing [China], April 5 : Beijing has announced a cybersecurity review of Micron Technology, a top-tier US chipmaker, The New York Times reported. The measure, which many industry analysts had expected, is China's most significant stroke of retaliation against Washington over its campaign to sever China's access to high-end chips.

When top Chinese officials held receptions for dozens of American and European business executives at back-to-back annual economic forums last week, the intended message was clear: China is open for business. But by week's end, China's fearsome regulators had sent an altogether different signal.

China's internet watchdog the Cyberspace Administration of China (CAC) 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, a Chinese foreign ministry spokeswoman, characterised the review as a "normal regulatory measure" focused on products that could affect national security, NYT said.

Based in Boise, Idaho, Micron Technology makes memory chips used in phones, computers, data centres, cars and other electronics. According to NYT, it has longstanding ties in China and is an emblem of America's leading position in the global semiconductor industry. But now, Micron has gotten ensnared in China's drive to become self-sufficient in advanced technology.

Senator Jim Risch, a Republican from Idaho, criticised China's investigation of Micron, saying it was an attempt to undermine the US position in the semiconductor industry, NYT said.

"This move further helps the American people see China for what it is an aggressor and a bully that was never interested in true economic partnership," Risch said in a statement.

The daily newspaper reported shares of Micron have fallen 9 per cent since the news. Micron said in a statement that its business in China was operating as normal and that it was "cooperating fully" with the authorities.

The mixed messages from China reflect the tightrope the country's leaders are walking. According to The New York Times, they are trying to support a struggling economy that only recently reopened after three years of strict pandemic restrictions, while trying to present an unbending political image to an increasingly hostile Washington.

According to NYT, at one of last week's fetes for foreign business executives, including Apple's Tim Cook, Li Qiang, China's new premier, pledged that China would continue to "open its doors wider and wider."

"China isn't shy about using varied tactics to deal with foreign firms," said Dan Wang, a visiting scholar at Yale Law School and a technology analyst at Gavekal Dragonomics, a research firm. "Sometimes it seems to say: Well if you don't like these carrots, we've got a big stick as well."

China's decision to put Micron under review followed sweeping restrictions placed by the US on China's semiconductor industry. According to NYT, those measures, unveiled in October, targeted some of Micron's Chinese competitors.

Micron opened its first factory in China in 2007, in Xi'an. NYT said the chipmaker has about 3,000 employees across the country working in customer service, sales and engineering. It has a centre in Shanghai where chips are designed, as well as branch offices in Beijing and Shenzhen.

"We are pleased to be a growing part of the China technology industry," a former Micron chairman, Steve Appleton, said in a statement in 2007.

But as China's ambitious plan to become a global competitor in technology intensified, Micron fell into the centre of the country's tech competition with the US, the daily newspaper said. In 2018, the US Justice Department began investigating chipmakers from China and Taiwan for allegedly stealing trade secrets from Micron. According to NYT, one of the compes has pleaded guilty, and the case of the other is continuing.

In 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 Omdia, a technology research firm.

"Micron has been one of the most responsive compes to US government policy," she said, adding that the company has a "relative lack of dependence on China."

Micron began reducing the number of Chinese staff and shuttering operations at its Shanghai chip design centre in January 2022. According to the daily newspaper, like many Western chipmakers, Micron has a strong manufacturing presence in Asia, including in Singapore and Taiwan, but it recently announced plans for a USD 100 billion chip plant in New York. President Biden heralded it as "one of the most significant investments in American history."

Mainland China accounted for roughly 11 per cent of its sales in 2022, down from roughly half five years earlier, according to company reports.

In its latest earnings report in March, Micron warned investors that the Chinese government could "restrict us from participating in the China market or may prevent us from competing effectively with Chinese compes." It also underscored the competitive risks it faced from state-funded Chinese semiconductor competitors.

The action against Micron, industry analysts said, appeared aimed at sending a message to US technology policymakers, while also protecting domestic industry. Investors in China welcomed the news, pushing shares of domestic semiconductor firms higher. The analysts said Micron's Chinese clients were likely to transfer orders to Chinese suppliers in an effort to hedge their bets, according to NYT.

But the Micron case has sent a warning to foreign businesses and left Micron's future uncertain, said Samm Sacks, a senior fellow at Yale Law School. According to the daily newspaper, she called the cybersecurity review process a "black box."