China Escalates U.S. Tech War With Micron Ban

China Escalates U.S. Tech War With Micron Ban

When it comes to banning foreign tech companies from Chinese supply chains, Beijing has long chosen to operate in a covert or even clandestine manner. Regulators lectured executives in the back room, burdened them with excessive bureaucracy, or occasionally raided their offices. Seldom has the government directly told a company that it is no longer welcome.

But that’s exactly what Micron Technology signaled in a late night announcement on Sunday.

The Chinese government banned companies that handle critical information from buying microchips made by Boise, Idaho-based Micron. The company’s chips, which are used to store memory in all sorts of electronic devices like phones and computers, were found to have “relatively serious cybersecurity issues” by China’s Internet regulator after a review.

Micron said it is “evaluating” the government’s findings and “assessing” what it will do next. Analysts said the company, which has been selling chips in China for years, may be barred from doing business with Chinese companies in the future.

The openness and speed with which the Chinese authorities have acted against Micron – they spent less than two months investigating – underscore how far the two sides are drifting apart on technology policy. Last year, the Biden administration took tough action to deny Chinese chipmakers access to critical tools needed to manufacture advanced chips, as well as access to the chips that power supercomputers and develop powerful artificial intelligence algorithms.

The Micron action, widely seen as retaliation for those moves, demonstrates some of China’s advantage over the United States: a swift and feared authoritarian rule that can quickly issue and enforce outright bans. It also offers a glimpse into Beijing’s new tactics.

By blocking Micron, authorities have created a spot in the industry for Chinese chipmakers to fill. The move could also create a new wedge between the United States and its allies, whose companies could make billions in sales if they step in and take over businesses that Micron could lose.

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

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

For nearly a decade, China and the United States have been at odds for global technology leadership. Chinese computer hacks by American companies and actions aimed at acquiring confidential intellectual property caused alarm in Washington. In Beijing, revelations by former US intelligence official Edward J. Snowden revealed the vulnerability of over-reliance on American technology.

While both sides searched for new advantages, both focused on the semiconductor industry. The tiny microchips responsible for nearly all electronics were a practical bottleneck for the United States, which worked to deny China access to the smallest and fastest chips. The hope was to make China’s supercomputers less intelligent and its smartphones less salable.

To counter Washington, China subsidized domestic chip leaders generously. While they haven’t been able to keep up with global competitors for the most advanced chips, some companies have been successful with less sophisticated parts, such as memory chips and larger logic chips that work in cheaper smartphones and cars.

Then, in October, the Biden administration announced a series of sweeping measures aimed at China’s most successful semiconductor companies. The move, along with multibillion-dollar new subsidies for chip production in the United States, has drawn criticism from Chinese policymakers, said Paul Triolo, senior vice president for China at strategy consulting firm Albright Stonebridge Group.

“Officials in Beijing have been complaining about US actions for the past few months to anyone who will listen,” he said. “Beijing sees these moves as primarily politically motivated and is now ready to take the plunge,” added Mr. Triolo.

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

In the United States, political debates and legal challenges can weaken the intensity of government efforts. Big American companies, for example, found legal solutions to Washington’s attempts to throttle the sale of components to companies like Chinese telecoms equipment maker Huawei. Some multinationals successfully lobbied for licenses that would allow them to continue selling to blacklisted companies.

By targeting Micron, China is attacking one of the few sectors — memory chips — in which it has a firm footing due to its chip competition with the United States.

While it makes strategic sense to protect that success by shutting out American competitors, China remains heavily reliant on the US 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 restraint on certain American companies so we can continue to promote technology and trade cooperation and avoid an isolated and standalone approach,” he wrote Monday on Weibo, a Chinese social network outlet .

Another question raised by Sunday’s crackdown on Micron is how US ally South Korea will respond. Its companies, notably Samsung and SK Hynix, benefit the most from the Micron ban. The two companies are expected to add customers to Micron, which reported sales of $3.3 billion 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 such an obligation.”