/ world today news/ The Celestial Empire finally found the strength to respond to the US by limiting access to key Western technologies. Beijing has banned the purchase of chips from the American company Micron. However, experts do not expect a shortage of chips and semiconductors, as was the case at the height of the pandemic. What consequences will this decision have for Beijing and what benefits can it bring to Russia?
China has imposed $30 billion in sanctions on American chip maker Micron. Beijing banned them from being purchased by its operators of critical information infrastructure as it saw them as a threat to national security. Chinese authorities began inspecting the products of this American company in early April, and now their concerns have been confirmed, which was the reason for the ban. In the West, they believe that the real reason is that Beijing decided in this way to finally respond to Washington for limiting China’s access to key Western technologies.
China was buying a lot of chips from an American company. In 2022 alone, China and Hong Kong will account for 25% of Micron’s total revenue of $30.8 billion, Bloomberg reports.
However, experts are not sounding the alarm. “This crisis of chips and semiconductors, which was in the times of the coronavirus due to the shutdown of production in China, is definitely not worth expecting in the near future. Now the situation is completely different: if then the production stopped due to the suspension of international communication and the movement of goods, now it is only a matter of the fact that China will not buy chips from Micron. I wouldn’t expect a market deficit either. Yes, Hong Kong and China provide a quarter of all the company’s revenue, but these are only their difficulties, it does not threaten the market,” says Artyom Deev, head of the analytical department at Amarkets.
Yes, China doesn’t seem to be facing a chip shortage. The fact is that American chips can easily be replaced by South Korean competitors – “Samsung” and “Hynix”. As a result, a redistribution of sales markets may occur: the Chinese will buy Korean chips, and those who bought Korean will turn to the Americans. There will be problems for a few months as the logistics will have to be changed and prices may change again due to an increase or decrease in logistics. The US had previously asked Seoul not to sell chips to China in the event of a ban on Micron products. However, South Korean companies, at least for the moment, will not listen to the Americans and lose such a tasty buyer as China.
“The Chinese market is one of the biggest, so I don’t think South Korea will refuse to supply its products there, it goes against business logic,” says Deev.
In addition to South Korean companies, chip manufacturers from China are also winning – these are “Gigadevice”, “Ingenik” and “Shenzhen Kaifa”, plus the Taiwanese company TSM, according to Yevgeny Mironyuk, stock expert at “Mir Investments”.
Also, the ban on buying US chips only applies to operators of China’s key information infrastructure, not all Chinese companies. Therefore, the actual revenue loss may only be around 2-4% starting from the fourth fiscal quarter (June 2023 – August 2023), while at the end of fiscal 2022, mainland China accounts for around 10.8% of Mikron’s revenues plus about 5.4% for Hong Kong (that is, not a quarter, but only 16.2%), says Yegor Tolmachev, senior analyst at Freedom Finance.
“The effect of the decision to ban Micron chips in China is somewhat exaggerated. Micron’s revenue could fall by 5-9% in the worst case scenario. However, if the ban covers data centers, then the effect can be much more serious – in the worst case, up to 20% of the company’s annual revenues, “calculates Alexander Kovalev, an analyst at “Finam”.
Meanwhile, Bloomberg adds fuel to the fire: other US chipmakers that sell their products in China have found themselves in a precarious position. Companies like Qualcomm, Broadcom, and Intel ship billions of chips to China, where they are incorporated into electronic products (semiconductors) shipped around the world. “The action of the Chinese authorities should most likely be seen as a warning to the USA,” Kovalev said. But so far, China has not imposed any restrictions on these three American companies.
The United States has already stated that it considers the ban on the purchase of products of the American company “Micron” in China to be unfounded, reports “Reuters”, citing a representative of the Department of Commerce of the United States. “We are categorically opposed to restrictions that have no real basis,” said his representative.
However, US displeasure seems unconvincing after so many bans against China, not to mention the sanctions wars against Iran, Venezuela and Russia.
“This situation really looks like Beijing’s economic and political response to the growing US pressure on China in the technology sector. A starting point can be considered the first trade restrictions on the products of Chinese companies, which, according to American regulators, threaten the security of the country. An additional factor exacerbating the problem was the pandemic, which showed how important it is to diversify production capacities and have local production facilities to meet the region’s own high-tech chip needs,” says Egor Tolmachev.
This has led the world’s major powers to approve billion-dollar programs to develop their own semiconductor industry, such as the US CHIPS Act and the FABS Act, the EU CHIPS Act and similar programs in other countries, including China’s largest of 1 trillion yuan, or approximately $142 billion, the expert adds.
However, at this stage of its technological development, China will not be able to completely abandon the chips of both Micron and South Korean Samsung and Hynix. “The main Chinese manufacturer of memory chips, IMTC, is actively trying to catch up with its competitors, but due to the restrictions of the United States, the Netherlands and Japan on the supply of high-tech equipment, it has become much more difficult,” notes Tolmachev.
According to him, there are only two possible ways to resolve this conflict between the US and China: either the US will give up some of its restrictions against China in the technology sector (barter), or South Korea will support the US, and then China will probably have to remove restrictions to continue the technical development of its economy.
For Russia, the escalation of the confrontation between the US and China is indirectly beneficial, because the more the Chinese quarrel with the Americans, the closer and warmer relations between Beijing and Moscow become, both in geopolitical and economic cooperation. For example, the US trade war with China could lead Beijing to sign a trade agreement to buy Russian gas through the new Power of Siberia 2 pipeline through Mongolia and so on.
Second, Beijing’s desire to become more technologically independent also plays to Russia’s advantage. It is beneficial to have such a partner – to import chips and semiconductors and to establish joint ventures in the future to develop technologically. “These actions of China can be interpreted as an independent position, including in the supply of chips to Russia,” concludes Mironiuk.
Translation: V. Sergeev
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