China Is Jumping at Digital Shadows

“Survival is an infinite capacity for suspicion,” goes the line from John Le Carre’s classic Cold War-era novel Tinker, Tailor, Soldier, Spy. And right now, in the technology realm, China is fighting hard just to stay in the game.

Three brief paragraphs posted by the Cyberspace Administration of China to its website on Sunday night outlined the latest round of digital paranoia between Beijing and Washington, with Boise-based Micron Technology Inc. the most-recent victim.

“Micron products have relatively serious potential network security issues,” the CAC said without elaborating. “Operators of national critical information infrastructure should stop purchasing Micron products.”

We ought not to make too much of Beijing’s decision to keep details of its security review under wraps; China in March announced it was coming, but never pledged to reveal the process by which it would come to a conclusion. Governments don’t serve their own national interests by giving away intelligence methods or analyses. Suffice to say some people within the political machinery felt it wise to halt purchases from the largest US maker of memory chips.

What’s important now is to divine whether this was a decision based on security considerations or political ones. To get there, we should take a closer look at the practical implications of the move.

Micron is the world’s third-largest supplier of dynamic random-access memory chips, DRAM, an $81 billion slice of the global semiconductor market. It’s also fifth in the $60 billion NAND Flash memory business, according to Taipei-based market researcher TrendForce.

Flash memory is the component within electronics that saves information. It stores the photos on your iPhone and all those Word docs sitting on your laptop. That data remains even when the device is powered off. DRAM, on the other hand, is crucial to ensuring that a computer runs smoothly and can crunch numbers by temporarily holding information in small chunks for the central processing unit (CPU) to perform calculations. Data doesn’t last long inside DRAM and disappears when power is cut.

Neither DRAM or flash can process or send anything. Memory chips are very important, yet incredibly mundane. They are so standardized as to become a commodity — akin to oil or copper — measured in bits and sold according to their capacity. I’d not be so bold as to say it’s impossible to hack a memory chip or exploit its structure, but if there was a vulnerability then that weakness would likely lie in a supporting component such as the CPU or a networking chip. Memory plays a passive role in a computer system and is not a cyber-security attack vector.

Practically speaking, this ban is almost meaningless. Micron got just 11% of its revenue from China last fiscal year, or about $3.3 billion, behind what it received from the US and Taiwan. Additionally, most of the chips it sells in China get exported straight back out within the bowels of desktop PCs, laptops, servers and smartphones. A minority are destined to stay inside the country, and only a sliver of those would end up in the “critical information infrastructure” the CAC alludes to in its announcement.

Yet Beijing is trying hard to ensure its semiconductor industry survives, and the memory industry is the one sector where it’s in with a chance. The nation’s position in contract manufacturing lags Taiwan Semiconductor Manufacturing Co., United Microelectronics Corp. and Samsung Electronics Co., and efforts in other areas, such as chip design, have also shown little result.

Yangtze Memory Technologies Co., on the other hand, stands out as the great hope. The government-backed company has shown off impressive results in NAND, which could make it a viable competitor to leaders including Samsung, Kioxia Holdings Corp. and Micron. ChangXin Memory Technologies Inc., also government backed, is making advances in the DRAM space.

Unfortunately for YMTC and CXMT, memory chips are a commodity where manufacturing capacity and technical skill command huge advantages that allow the leaders to stay ahead of the pack. The only way to really hobble Micron would be to find an alternative way to close the gap, one that the US company foreshadowed as a possibility.

“The Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies,” Micron wrote in its fiscal 2022 10-K filing, citing both YMTC and CXMT as local competitors.

This approach by Beijing is extremely short-sighted, though quite familiar. Removing Micron from its market might make political leaders feel tough and send a message to Washington. But memory is a commodity and this gap will just be filled with another provider. More likely than not it won’t be a Chinese alternative but a South Korean or Japanese memory chipmaker.

If Beijing really forces the point, and insists that “critical” infrastructure be serviced only by domestic providers, then the result will simply be to hobble local networking and server companies by compelling them to deploy second-rate components. Weakening its own capabilities plays into Washington’s hands. And given that US allies, including Japan and the Netherlands, have agreed to stem their supply of manufacturing technology to China, the prospect that local heroes like YMTC and CXMT will offer world-leading chips becomes increasingly remote.

For China, the issue is not whether its ban on Micron — which mimics similar restrictions the US has placed on Chinese companies — is warranted or reasonable. It’s whether such a move fulfills some specific national security, economic, or technological goal. If Micron’s products do truly pose a risk, then regulators would be justified in insisting that such chips be ripped out of existing systems.

However, should this just be a ruse for something else — a tit-for-tat blow to the US — then Beijing only hurts itself by marshalling resources to fight a threat that exists only in its imagination.

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• Intel's Paying a High Cost for Its Towering Ambition: Tim Culpan  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.