When top Chinese officials hosted 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 the end of the week, China’s fearsome regulators had sent a completely different signal.
Beijing announced a cybersecurity review of Micron Technology, a top-tier American chipmaker, on Friday. The move, expected by many industry analysts, is China’s most significant retaliatory strike against Washington over its campaign to cut off China’s access to high-end chips.
China’s Internet watchdog saying was conducting a review of Micron products sold in the country to “safeguard the security of the information infrastructure supply chain.” Mao Ning, a spokesman for China’s foreign ministry, characterized the review as a “normal regulatory measure” focused on products that could affect national security.
Based in Boise, Idaho, Micron Technology makes memory chips used in phones, computers, data centers, cars, and other electronic devices. It has long-standing ties to China and is emblematic of the United States’ leadership position in the global semiconductor industry. But now Micron has been caught up in China’s drive to become self-sufficient in advanced technology.
Sen. Jim Risch, an Idaho Republican, criticized China’s investigation of Micron, saying it was an attempt to undermine the United States’ position in the semiconductor industry.
“This move further helps the American people see China for what it is: an aggressor and a bully who was never interested in a true economic partnership,” Risch said in a statement.
Micron’s shares have fallen nearly 6 percent since the news. Micron said in a statement that its business in China was operating as normal and that it was “fully cooperating” with authorities.
China’s official mixed messages reflect the tightrope that the country’s leaders are walking. They are trying to support a struggling economy that recently reopened after three years of strict pandemic restrictions, while trying to present an uncompromising political image to an increasingly hostile Washington. At one of the parties last week for foreign business executives, including Apple’s Tim Cook, Li Qiang, China’s new premier, vowed that China would continue to “open its doors wider and wider.”
“China is not shy about using mixed 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 he seems to say, ‘Well, if you don’t like these carrots, we’ve got a big stick, too.'”
China’s decision to put Micron under review followed sweeping restrictions imposed by the United States on China’s semiconductor industry. Those measures, revealed in October, were aimed at some of Micron’s Chinese competitors.
Micron opened its first factory in China in 2007, in Xi’an. The chipmaker has about 3,000 employees across the country who work 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 pleased to be a growing part of China’s technology industry,” a former Micron president, 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 center of the country’s technology competition with the United States. In 2018, the US Department of Justice began investigating Chinese and Taiwanese chipmakers for allegedly stealing Micron trade secrets. One of the companies has pleaded guiltyand the case of the other continues.
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 Omdia, a technology research firm.
“Micron has been one of the companies that has been most responsive to US government policy,” he said, adding that the company has a “relative lack of dependence on China.”
Micron began reducing the number of Chinese staff and closed operations at its Shanghai chip design center in January 2022. Like many Western chipmakers, Micron has a strong manufacturing presence in Asia, including in Singapore and Taiwan, but recently announced plans for a $100 billion chip plant in New York. President Biden heralded it as “one of the most important investments in American history.”
Mainland China accounted for about 11 percent of its sales in 2022, up from about half five years earlier, according to company reports.
In its latest March earnings report, Micron warned investors that the Chinese government could “restrict us from participating in the Chinese market or prevent us from competing effectively with Chinese companies.” It also highlighted the competitive risks it faced from Chinese state-funded semiconductor competitors.
The action against Micron, industry analysts said, appeared to be aimed at sending a message to US tech lawmakers, while also protecting the domestic industry. Investors in China welcomed the news, which sent shares of domestic semiconductor companies higher. Analysts said Micron’s Chinese customers are likely to transfer orders to Chinese suppliers in an effort to hedge their bets.
But the Micron case sent a warning to foreign companies and left Micron’s future uncertain, said Samm Sacks, a senior fellow at Yale Law School. He called the cybersecurity review process a “black box.”
“Not only is there no known criteria for passing it, but there’s never been a specific ending if you don’t pass has been articulated,” he said. That could have a chilling effect.
“Many companies are now having a come to Jesus moment,” said Ms. Sacks. “Is it worth the cost now to be in this incredibly difficult market?”
