When China retaliates...

China's ban on the sale of products from the American chipmaker Micron Technology is seen as the first significant act of retaliation against the sanctions imposed by the US on Chinese technology companies.

Illustrative image. (Source: Reuters)

On May 21, the Cyberspace Administration of China (CAC) announced it would ban domestic entities "operating critical information infrastructure" from purchasing products from Micron due to "serious risks" to "key national infrastructure."

Special context

Notably, this move comes at a time of escalating US-China tensions in the technology sector. The US export ban of October 2022 severely impacted the trade and production capabilities of many Chinese companies such as Yangtze Memory Technologies Corp (YMTC), Changxin Memory Technologies (CXMT), Semiconductor Manufacturing International Company (SMIC), and HiSilicon.

Shortly afterward, US allies and partners such as Japan, the Netherlands, and Taiwan (China), countries and territories that play a key role in the global semiconductor supply chain, restricted the export of their key technology products to the Chinese market.

That's not even taking into account previous bans imposed by the US government on major Chinese technology companies, most notably on Huawei and ZTE in 2019.

Furthermore, Beijing's action against Micron comes amidst two significant events. First, the recent G7 summit of leading industrialized nations expressed a desire to mitigate risks and diversify supply chains for critical technologies, implicitly alluding to threats from China. Second, Micron announced its decision to invest $3.6 billion in a factory in Japan.

More importantly, this move comes as China strives to develop its semiconductor industry. Its chip production accounts for 16% of the world's semiconductor industry. In terms of Random Memory (DRAM) and Non-Randomized Storage Memory (NAND), China accounts for 21% and 15%, respectively.

Beijing is currently boosting its domestic semiconductor chip manufacturing capacity. The country recently approved a $1.9 billion investment in YMTC, China's largest chip manufacturer, to help the company recover from the US ban. At the same time, Powev Electronic Technology Co., based in Shenzhen, is receiving significant resources to ramp up large-scale production of memory chips and solid-state memory.

Many calculations

In light of this situation, China's move first shows that its regulators are prepared to take tough action against businesses that negatively impact Beijing's interests, even if it's the world's leading memory chip manufacturer.

Secondly, eliminating foreign businesses from the domestic market will create space for domestic companies to rise and become "giants" in the memory chip industry. Although major memory chip manufacturers like SK Hynix and Samsung still hold a large market share, this country with a billion people still has enough room for domestic memory chip developers to expand globally.

Thirdly, the impact of banning Micron on China is not significant. The company's main competitors in the Chinese market are SK Hynix and Samsung, two of the world's leading DRAM and NAND manufacturers. Therefore, Beijing doesn't need to worry too much about the impact of this tough decision on Micron, especially given that both SK Hynix and Samsung still have significant interests in the Asian superpower market.

Fourth, with most of Micron's customers being consumer electronics companies like Lenovo, Xiaomi, and Inspur, China's decision is likely to negatively impact Washington's interests in the supply chain, rather than Beijing's. Simultaneously, it will diminish Micron's standing in the eyes of consumers, negatively affecting its reputation and revenue.

Fifth, this move will further strain relations between Beijing and Washington in the technology sector. Chinese regulators maintain that the ban on Micron is merely an "exceptional case" and remains committed to keeping the market "open." However, this also demonstrates Beijing's new position, challenging Washington's position in the technology competition between the two countries. At the same time, Beijing wants to send a message that Washington is not the sole driving force in determining the direction of current bilateral relations.

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