2023-05-24 15:54:59
China retaliates in chip dispute with US
Beijing banned the chips from the US manufacturer Micron because of “significant security risks”. There may be political reasons behind this.
China is turning the tables: The cyber security authority CAC justified its warning against the products of the US chip manufacturer Micron with “significant security risks for our critical information infrastructure supply chain”.
There is even talk of a threat to national security in Beijing. It’s a language similar to that used by US authorities when they warn about Chinese technology from Tiktok and Huawei, for example. And it is Beijing’s harshest reaction to date to the export restrictions for semiconductors that Washington issued last October. It means a new level of escalation in the trade conflict between the two world powers, even if the direct impact of the Micron case on China’s chip supply should be limited.
The US Department of Commerce protested the decision on Monday: “This measure, as well as the recent raids and attacks on other American companies, contradict the People’s Republic of China’s assurances that it is opening its markets and promoting a transparent legal framework,” it said . The ministry is alluding to the searches of the offices of the consulting firms Mintz, Bain and Capvision in recent weeks, during which some employees were arrested. Together with the announced anti-espionage law, this is currently causing great uncertainty among foreign companies in China.
«retaliation for US export controls»
The CAC had announced the security check against the largest US manufacturer of memory chips at the end of March. In its decision, however, the authority failed to provide many technical details. However, she insisted that political motives played no role. But Holden Triplett, founder of Trenchcoat Advisors and a former FBI counterintelligence officer in Beijing, told the news agency Bloomberg: «No one should take this CAC decision as anything other than retaliation for US semiconductor export controls.”
Because of its huge electronics industry, China is the world’s largest importer of semiconductors. The country spends more money on chips than on oil. And one of the most important suppliers so far has been Micron.
Is time almost up for many foreign companies?
However, the president of the EU Chamber of Commerce in China, Jörg Wuttke, said Beijing could “tackle Micron tough because it’s interchangeable”. It is another signal that time may soon be up for many foreign companies in China. Beijing is only interested in companies that bring high technologies into the country that China cannot yet produce itself.
Unlike the chips from US competitors such as Nvidia, Intel or AMD, Micron’s memory chips are mass-produced. South Korean manufacturers SK Hynix and Samsung, for example, make very similar products, so China’s electronics industry should be well supplied – although Washington is reportedly already pressuring the Seoul government to prevent local companies from stepping into the breach jump. Especially since China itself is working feverishly to build up its own production capacities.
Overall, Beijing is still cautious
According to analysts at investment bank Jefferies, the impact of the CAC decision on Micron could be “ultimately quite limited”. The company makes a good tenth of its approximately 30 billion dollar turnover in China. However, most of Micron’s memory chips sold in China are used in consumer electronics such as smartphones and notebooks. The CAC warning is primarily aimed at operators of critical infrastructure such as data centers and cloud computing services. However, it cannot be ruled out that other Chinese customers will do without Micron’s chips in anticipatory obedience.
According to experts, Beijing’s overall response is still more cautious than the US government’s sanctions against China – which is also due to the fact that China is dependent on the US for chips. US President Joe Biden issued extensive export bans on high-performance chips last October. He reasoned that China could use these chips to develop its military capabilities. An agreement with the governments of the Netherlands and Japan to stop exporting semiconductor production machines poses a serious threat to China’s chip ambitions.
According to Mirko Woitzik from the analysis company Everstream, US export controls are already having a “big impact” on China. The control list with Chinese companies is getting longer and longer. “This makes it increasingly difficult for China to import certain semiconductors and machines.” Last year, Chinese imports of machines for the production of semiconductors already fell by 15 percent, this year even more. In addition: “Foreign chip manufacturers are hardly investing in China anymore. They are building new factories, especially in the US and other Asian countries.” The governments there support the development with billions.
China is still hardly suffering, but the effects are getting bigger
In the case of applications such as automated driving and artificial intelligence à la Chat GPT, this is currently hardly a problem, since they require less powerful chips than the US export restrictions provide for. The head of the analysis company Yole Group, Jean-Christophe Eloy, recently stated that less than one percent of all semiconductors in China are affected by US controls.
“The US controls hurt a little today, but the effects are becoming more noticeable every year,” says German chip expert Jan-Peter Kleinhans. “It’s about freezing China’s skills as they are.” The US export controls are primarily about so-called AI accelerators, which are used in supercomputers and data centers. Chinese companies could design them, but not produce them themselves.
And although Beijing is investing billions in funding to expand its production capacities, according to Kleinhans, the country will still be dependent on foreign technology for years to come: “Within this decade, I don’t see any chance for China to become independent in chip production below 28 nanometers. »
For comparison: The current iPhone 14 Pro contains chips that are produced by the Taiwanese contract manufacturer TSMC using the 4-nanometer process. With less complicated chips, for example for entertainment and medical technology as well as the car industry, the country could become self-sufficient in the foreseeable future.
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