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 was open for business.
But by week’s end, China’s fearsome regulators had sent an altogether different signal.
Beijing announced a cybersecurity probe into Micron Technology, a top-tier U.S. chip maker, on Friday. The measure, which many industry analysts had expected, marked China’s most significant stroke of retaliation against Washington over its campaign to sever China’s access to high-end chips.
China’s internet watchdog said that 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, characterized the review as a “normal regulatory measure” focused on products that could affect national security.
Headquartered in Boise, Idaho, Micron Technology makes memory chips used in phones, computers, data centers, cars and in other electronics. 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.
James Risch, a U.S. senator from Idaho, criticized China’s investigation of Micron, saying it was an attempt to undermine the U.S. position in the semiconductor industry.
“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,” Mr. Risch, a Republican, said in a statement.
Shares of Micron have fallen nearly 6 percent since the news. Micron said in a statement that its business in China were operating as normal and was “cooperating fully” with authorities.
The official mixed messages from China reflect the tightrope the country’s leaders are walking. They are trying to support an economy that is struggling after only recently reopening after three years of strict pandemic restrictions, while trying to present an unbending political image to an increasingly hostile Washington. 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,” he said.
China’s decision to put Micron under review follows sweeping restrictions placed by the United States on China’s semiconductor industry. Those measures, unveiled in October, targeted some of Micron’s Chinese competitors.
Micron opened its first manufacturing plant in China in 2006, in Xi’an. The chip maker has approximately 3,000 employees across the country working in customer service, sales and engineering. It has a center 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 2006.
But as China’s ambitious plan to become a global competitor in technology intensified, Micron fell into the center of the country’s tech competition with the United States. In 2018, the U.S. Justice Department began investigating chip makers from China and Taiwan for allegedly stealing trade secrets from Micron. One of the companies has pleaded guilty and the case of the other is ongoing.
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 companies to U.S. 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 center in January 2022. Like many Western chip makers, Micron has a strong manufacturing presence in Asia, including in Singapore and Taiwan, but it recently announced plans for a $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 percent of its sales in 2022, down from roughly half of its sales 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 companies.” 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 U.S. technology policymakers, while also protecting domestic industry. Investors in China welcomed the news, pushing shares of domestic semiconductor firms higher. The analysts said that Micron’s Chinese clients will likely transfer orders from Micron to Chinese suppliers in an effort to hedge their bets.
But the Micron case has sent a warning to foreign business and left Micron’s future uncertain, said Samm Sachs, a senior fellow at Yale Law School. She called the cybersecurity review process a “black box.”
“Not only is there no criteria known to pass it, there’s not a specific end game that’s ever been articulated if you don’t pass it,” she said. That could have a chilling effect.
“Many companies are now having a come to Jesus moment,” Ms. Sachs said. “Is it worth the cost now to be in this incredibly difficult market?”
