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China bans US tech company’s products over ‘security’ problems

By Sarah May
|
May 22, 2023

In the latest sign of increasing tensions between Washington and Beijing, China's cyberspace regulatory authority said over the weekend that products from American memory chip manufacturer Micron Technology did not pass its security review, as Reuters reports.

As a result, Micron-made equipment will be banned from use in key infrastructure projects in areas including transportation, finance, and telecommunications in China for the foreseeable future.

“Serious Network Security Risks” Cited

In announcing its decision, the Cyberspace Administration of China (CAC) declared, according to the BBC, “The 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.”

Notably, however, the regulator did not offer specifics of the supposed risks or even which of Micron's products were plagued by them.

A spokesperson for Micron acknowledged receipt of the regulatory decision, saying that the company was “evaluating the conclusion and assessing [its] next steps.”

“We look forward to continuing to engage in discussions with Chinese authorities,” the Micron representative added.

Biden Administration Responds

Reacting to the news from China was a spokesperson for Commerce Secretary Gina Raimondo, whose statement began, “We have seen the announcement by the People's Republic of China (PRC) regarding Micron. We firmly oppose restrictions that have no basis in fact.”

“This action, along with recent raids and targeting of other American firms, is inconsistent with the PRC's assertions that it is opening its markets and committed to a transparent regulatory framework,” the statement continued.

The Commerce Department then pledged to “engage directly with PRC authorities” to gain clarity on the move and outline the position of the United States.

“We also will engage with key allies and partners to ensure we are closely coordinated to address distortions of the memory chip market cause by China's actions,” the response concluded.

Revenue Impact Estimated

As Reuters reported separately, Micron predicted on Monday that China's actions would produce a revenue drop in the single-digit percentage range.

Though market analysts seemed to view the direct impact on the company as relatively limited, they also cautioned that China's decision could compel other companies to purge themselves of Micron products simply out of political calculation.

Mark Murphy, the company's CFO explained on Monday that Micron was not made aware of China's specific concerns and noted that roughly a quarter of the company's revenue comes from direct and indirect sales to firms based in China.

Company predictions that revenue loss would not exceed single digits helped mitigate a drop in share price that hit 6% at one point in time following the CAC's announcement.

“De-Risk, Not De-Couple”

The news of Micron's ban comes amid efforts on the part of the United States and allied nations to continue initiatives designed to decrease reliance on Chinese technology, in part by boosting investment in chip manufacturing and quantum computing, as Axios notes.

Last fall, the Biden administration enacted export restrictions meant to hider China's capability when it comes to producing advanced semiconductors, and Japan and the Netherlands also strictly limiting their own exports of state-of-the-art chipmaking components to the country.

At the G7 summit in Hiroshima, Japan over the weekend, the assembled national leaders declared a shared philosophy with regard to Beijing, suggesting that they key is to “de-risk, not decouple” economic entanglements with China, as Reuters noted separately, saying, “[w]e are not decoupling or turning inwards. At the same time, we recognize that economic resilience requires de-risking and diversifying.”

President Joe Biden echoed those sentiments, saying on Sunday that pursuing the path outlined by the G7 when it comes to China “means taking steps to diversity our supply chains,” but precisely how successful the U.S. and its allies are in accomplishing that seemingly elusive goal in the coming years, only time will tell.