China imposes restrictions on semiconductors from US manufacturer Micron Technology

Context

In March 2023, the Chinese Central Cyberspace Administration Commission (CAC) announced that it would be conducting a cybersecurity review of the US company, Micron Technology, which is a major memory chip manufacturer. Following this review, in May 2023 it was announced that Micron Technology products would no longer be permitted for use or procurement in any major Chinese infrastructure projects. In a statement, the CAC said that “[t]he review found that Micron’s products have serious network security risks, which pose significant security risks to China’s critical information infrastructure supply chain, affecting China’s national security.” The decision was made pursuant to Articles 31–39 of China’s Cybersecurity Law and Regulations 1, 2, and 8 of the Regulations on the Protection of Key Information Infrastructure Security.

This framing was rejected by the US government, with a US Commerce Department spokesperson stating that “[w]e firmly oppose restrictions that have no basis in fact”. The broader context here is political tensions and rivalry between Washington and Beijing, that has frequently played out in the technology sector.

Impact

This measure impacted microchip processors – specifically the company Micron Technology. Prior to the introduction of this mechanism, in 2022 the Chinese market made up US$3.3 billion – or around 10% – of Micron Technology’s sales. Including the Hong Kong market, some reporting suggested it could be as much as 16% of the firm’s revenue.  Notably, Micron Technology also maintains a manufacturing presence in China. Upon news of the ban in May 2023, Micron shares fell by 3.7%. Subsequently, in June 2023 Micron warned that the restrictions could hit its revenue more than previously expected – triggering a further 2% drop in share prices.

Responses  

[i) US government and industry responses.

Responding to the May 2023 ban on use of its products in major Chinese infrastructure projects, Micron Technology said that it could result in a revenue loss as big as a “high single digit” percentage. Micron Technology nevertheless continued to invest in a major chip packaging facility in the Chinese city of Xian – which CEO Sanjay Mehrotra called a demonstration of Micron’s “unwavering commitment to its China business and team.”

In a statement, the US Commerce Department said that “[t]his action, along with recent raids and targeting of other American firms, is inconsistent with (Beijing’s) assertions that it is opening its markets and committed to a transparent regulatory framework”. Similarly, a US State Department spokesperson told press that “The Department of Commerce is engaging directly with the PRC (China) to make our view clear, and broadly, this action appears inconsistent with the PRC (China)’s assertions that it is open for business and committed to a transparent regulatory framework.”

Notably, the US government reportedly requested that its junior partner, South Korea, put pressure on Korean companies Samsung Electronics and SK Hynix, to refrain from filling the gap in the market if China were to block imports from Micron Technology.

[ii] Chinese Government Responses

On 24 May 2023, the spokesman of the Chinese Ministry of Foreign Affairs was asked if the ban on the procurement of products by Micron Technology was partly based on political motives. The spokesman emphasised that China made this decision entirely based on the investigated facts, and that such an investigation was not discriminatory against any particular country. She further condemned the US which had previously imposed a wide range of restrictions on Chinese companies and individuals, which she claimed was an unacceptable and arbitrary form of economic coercion.

[iv) Other states’ government and industry responses.

This incident occurred alongside international coordination between the US and its allies. A joint communique from the G7 nations in May 2023 noted the necessity of countering Beijing’s “malign practices” and “coercion”.

Status

This case is ongoing.

Reference list

Central Government of the People’s Republic of China. 2016.‘Cybersecurity Law of the People’s Republic of China’ [中华人民共和国网络安全法]. November 7. Available at: https://www.gov.cn/xinwen/2016-11/07/content_5129723.htm.

Central Government of the People’s Republic of China, ‘Regulations on the Protection of Key Information Infrastructure Security of the PRC’ [关键信息基础设施建设安全保护条例] (17 August 2021), available at: https://www.gov.cn/zhengce/content/2021-08/17/content_5631671.htm.

Cyberspace Administration of China. 2023. ‘Micron Technology’s products sold in China failed to pass the cyber security test’ [美光公司在华销售的产品未通过网络安全审查]. May 21.Available at: https://www.cac.gov.cn/2023-05/21/c_1686348043518073.htm.

He, L. 2023. “Micron warns of lost revenue after China slaps it with sanctions.” CNN. May 23. Available at: https://edition.cnn.com/2023/05/22/tech/china-ban-us-micron-chips-intl-hnk/index.html

Hoskins, P. 2023. “China bans major chip maker Micron from key infrastructure projects.” BBC News. May 22. Available at: https://www.bbc.com/news/business-65667746

Jaiswal, R. 2023. “US urges South Korea not to fill chip shortfalls in China if Micron banned, Financial Times reports”. Reuters. April 24. Available at: https://www.reuters .com/technology/us-urges-south-korea-not-fill-china-shortfalls-if-beijing-bans-micron-chips-ft-2023-04-23/

Milmo, D. and G. Wearden. “China bans US chipmaker Micron from vital infrastructure projects.” The Guardian. May 22. Available at: https://www.theguardian.com/business/ 2023/may/22/china-bans-us-micron-technology#:~:text=China%20had%20announced%20an%20official,processor%20chips%20on%20security%20grounds.

Ministry of Foreign Affairs of the People’s Republic of China. 2023. ‘Spokesman for the Ministry of Foreign Affairs, Mao Ning, held a regular press conference on 24 May 2023’ [2023年5月24日外交部发言人毛宁主持例行记者会] May 24. Available at: https://www.mfa.gov.cn/fyrbt_673021/202305/t20230524_11082843.shtml.

Mehta, C. “Micron warns of bigger revenue hit from China ban.” Reuters. June 17. Available at: https://www.reuters.com/technology/micron-says-half-china-headquarter-revenue-risk-due-ban-2023-06-16/