Paul van Gerven
25 May 2023

For the first time, the Chinese government is specifically denying a US chip company access to (some of) its markets.

In 2019, the Trump administration cut off Huawei, one of China’s most successful tech companies, from semiconductor lifeblood. Last year, the Biden administration piled on sweeping export controls for advanced chip-making equipment, essentially limiting China’s semiconductor manufacturing activities to 20nm and older nodes. Hundreds of Chinese companies are on the so-called Entity List, requiring American businesses to obtain a license from the US government to do business with them.

China’s response to these US sanctions has been remarkably mild so far. Officials denounced them in no uncertain terms publicly and probably in even harsher terms behind closed doors. They’ve also harassed US tech companies in China by increasing regulatory requirements and slow bureaucratic procedures, and even conducted some raids, but outright retaliatory measures haven’t materialized.

Until now. China’s cyberspace regulator CAC has announced that Micron’s memory chips “pose significant security risks to China’s critical information infrastructure supply chain” and has banned operators of such infrastructure from buying these products. It’s not yet clear which Micron products are affected and which customers will be barred from buying them.

Although the direct impact on the US memory maker may be limited as most of its Chinese customers are consumer electronics players, the move is widely regarded as China’s first real counterpunch, stoking fears of an escalation of the trade tensions. If the US responds tit for tat, the geopolitical wrestling match may spiral out of control. Such uncertainty presents a tricky maze to navigate for the semiconductor supply chain, whose multi-billion-dollar investments take years if not decades to recoup.

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Beijing’s move seems carefully designed. As well as sending a much stronger signal than before, it serves to drive a wedge between Western allies. Micron’s principal rivals are South Korea’s Samsung and SK Hynix, which could scoop up market share in China. Last month, the Financial Times reported that the White House asked South Korea to urge its chipmakers not to step into gaps in the Chinese market left by a ban of Micron. That request followed Beijing’s announcement of a national security review of the Idaho-based memory maker.

So far, the Biden administration has managed to keep its allies on board. Through intense lobbying efforts, it persuaded both the Netherlands and Japan to join the export ban on advanced semiconductor manufacturing equipment, barring national champions ASML, Nikon and TEL from selling advanced gear to Chinese customers.

On the other hand, the Micron move might prop up China’s domestic semiconductor industry in support of the leadership’s ambition to become self-sufficient. Before the US sanctions, the country made some significant progress in the memory space. Its leading NAND flash manufacturer YMTC was pre-selected by Apple to become a supplier. That deal was squashed by Washington, and the restrictions will severely hamper the company’s efforts to become globally competitive. The same is true for top Chinese DRAM manufacturer CXMT.

But that doesn’t appear to deter Beijing. “China hasn’t shown any signs of backing down from its semiconductor memory ambition. On the contrary, with strong financial support from the government, Chinese memory companies can support local equipment vendors and speed up the development of leading-edge tools for NAND and DRAM manufacturing. Although the future of China’s memory industry remains uncertain, what is clear is that memory will continue to be a strategic priority for the Chinese semiconductor ecosystem,” market researcher Yole Intelligence recently observed. China will need to continue to rely on Western semiconductor technology imports, but memory is one of the few domains where it can make something of a fist.

Simultaneously, the Micron ban sends to all Chinese chip-consuming companies, not just the networking sector, a clear signal that buying domestically is ‘much preferred’ – as if the US bans hadn’t made that point already.

Main picture credit: Micron