China bans Micron products from key infrastructure due to security concerns

The US Commerce Department strongly opposes this action, saying that it is ‘not based in fact’China said US chipmaker Micron Technology’s products posed “serious network security risks” as it banned operators of key infrastructure from buying them, in its first big measure against an American semiconductor group.

Cyberspace Administration of China announced on Sunday that the company, the largest US memory chip maker, “poses significant security risks for China’s critical infrastructure supply chain”. It ordered that “critical national infrastructure operators”, based in Idaho, stop buying products from Micron.

The CAC conducted a seven-week probe into Micron, which was widely viewed as retaliation against US efforts to restrict China’s access key technology. Washington introduced extensive chip export controls in October last year, and since then the Netherlands and Japan followed suit.

The US Commerce Department said that it strongly opposes the action, which it claimed had “no foundation in fact”.

The Commerce Department said that “this action, as well as recent raids on other American companies, is inconsistent with PRC assertions about opening up its markets and committing to a transparent regulatory structure.”

It said that it would seek clarification from Chinese authorities. It added that it would also engage with its key partners and allies to ensure we were closely coordinated in order to address the distortions on the memory chip markets caused by China’s action.

Analysts believe that Micron is the obvious target for Beijing, as its technology can be easily replaced by chips made by South Korean rivals Samsung or SK Hynix. Last month, the White House requested that South Korea urge its chipmakers to not fill any gap in China’s market if Micron products were restricted.

Micron is a major player in the Chinese market. According to a source familiar with the situation, 25 percent of Micron’s $30.8bn revenue was generated by Mainland Chinaand Hong Kong last year.

Paul Triolo, a China tech expert at Albright Stonebridge, stated: “This could be bad for Micron.” China’s definition could include data centres, the energy sector, financial sectors, transportation and other infrastructure.

He said that Micron’s memory chips were particularly popular with data centres.

Beijing’s edict came a day after G7 Leaders issued a harsh rebuke to China at the annual meeting of world leaders in Hiroshima. They criticized its human rights record and “non-market economic policies” as well as increasing military assertiveness on the East and South China Seas.

Sanjay Mehrotra, chief executive of Micron, was part of the delegation of business leaders that attended the G7 Summit. On Saturday night, he dined in a Japanese coastal town with US Ambassador to Japan Rahel Emanuel as well as Citi Chief Jane Fraser.

Micron released a statement saying that it had received CAC’s notification of the conclusion of their review of Micron products in China. “We are evaluating this conclusion and determining our next steps.” We look forward in continuing discussions with Chinese officials.”

A person with knowledge of the situation said that China informed Micron on Sunday in Beijing about its decision. Micron did not receive any communication from CAC following its response to the regulator’s questions in March, until the meeting at the weekend.

Triolo stated that the Micron ban was “new for China”, adding that Beijing did not take the US action “lying”.

The CAC stated in its statement that “China welcomes international companies and platform products to the China market, as long as they comply with China’s laws”. The statement of the regulator did not include any information about “security risks” that Micron’s product may pose.

Analysts have warned that Beijing’s restrictions may even cause Chinese companies who do not provide “critical information infrastructure” to remove Micron from their supply chain.

Triolo said that the blast radius might be larger.