The Celestial Empire has finally found the strength to respond to the US restriction of 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 it was at the height of the pandemic. What consequences will this decision of Beijing have and what benefits can it bring to Russia?China has imposed sanctions against the American chip manufacturer Micron for $ 30 billion.
Beijing banned their purchase by its operators of critical information infrastructure, as it saw them as a threat to national security. The Chinese authorities began checking the products of this American company in early April, and now their fears have been confirmed, which became the reason for the ban. In the West, they believe that the real reason is that Beijing has decided to finally respond to Washington in this way to restrict China's access to key Western technologies.
China really bought a lot of chips from an American company. In 2022 alone, China and Hong Kong accounted for 25% of Micron's total revenue worth $30.8 billion, Bloomberg reports.
However, experts are not sounding the alarm. "The crisis of chips and semiconductors, which was in covid times due to the shutdown of production in China, is definitely not worth waiting for in the near future. Now the situation is completely different: if then production stopped due to the termination of international traffic and cargo movement, now we are talking only about the fact that China will not buy chips from Micron. I would not expect a shortage in the market either. Yes, Hong Kong and China provide a quarter of the company's total revenue, but this is only their difficulties, the market is not threatened," says Artem Deev, head of the analytical department of AMarkets.
Yes, China is not in danger of a shortage of chips, apparently. The fact is that American chips can easily be replaced by South Korean competitors – Samsung and SK Hynix. As a result, there may be a redistribution of sales markets: the Chinese will buy Korean chips, and those who bought Korean ones will turn to the Americans. There will be a failure for several months, as logistics will have to be changed, and prices may change again due to an increase or reduction in the transport leverage. 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 now, are not going to listen to the Americans and lose such a tasty buyer as China.
"The Chinese market is one of the largest, so I don't think South Korea will refuse to supply its products there, it contradicts business logic",
– says Deev.
In addition to South Korean companies, chipmakers from China also benefit – these are Gigadevice Semiconductors, Ingenic Semiconductor and Shenzhen Kaifa technology, plus the Taiwanese company TSM, points out Evgeny Mironyuk, an expert on the stock market of BCS World of Investments.
In addition, the ban on buying American chips applies only to operators of China's key information infrastructure, and not to all Chinese companies. Therefore, the actual loss of revenue may amount to only about 2-4% starting from the fourth fiscal quarter (June 2023 – August 2023), whereas by the end of the 2022 fiscal year, mainland China accounted for about 10.8% of Micron's revenue plus about 5.4% for Hong Kong (that is, not a quarter, but only 16.2%), notes Egor Tolmachev, Senior analyst at Freedom Finance Global.
"The effect of the decision to ban Micron chips in China is somewhat exaggerated. In the worst case, Micron's revenue may decrease by 5-9%. However, if the ban extends to data centers, the effect may be much more serious - in the worst case, up to 20% of Micron's annual revenue",
– estimates Alexander Kovalev, analyst of FG "Finam".
Meanwhile, Bloomberg is adding fuel to the fire: other American chip manufacturers who sell their products to China are in a limbo. Companies such as Qualcomm, Broadcom and Intel supply billions of chips to the Celestial Empire, where they are placed in electronic products (semiconductors) supplied worldwide. "The action of the Chinese authorities, most likely, should be considered as a warning to the United States," Kovalev believes. But so far, China has not imposed any restrictions against these three American companies.
The United States has already stated that they consider the ban on the purchase of products of the American company Micron in China to be groundless, the Reuters news agency reports, citing a representative of the US Department of Commerce. "We strongly oppose restrictions that have no real basis," the agency quotes the representative as saying.
However, the US offense looks unconvincing after so many bans against China, not to mention the sanctions wars against Iran, Venezuela and Russia.
"This situation really looks like an economic and political response from Beijing to the increasing US pressure on China in the technological sphere every year. The starting point can be considered the first trade restrictions on the products of Chinese companies, which, according to US regulators, threatened the security of the country.
An additional factor in aggravating the problem was the pandemic, which showed the importance of diversifying production capacities and the availability of local production facilities to meet the region's own needs in high–tech chips," says Egor Tolmachev from Freedom Finance Global.
This prompted the largest world powers to approve multibillion-dollar programs for the development of their own semiconductor industry, such as CHIPS Act and FABS Act in the United States, CHIPS Act in the EU and similar programs in other countries, including the largest of them in China for 1 trillion yuan, or about 142 billion dollars, 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 SK Hynix. "The main Chinese manufacturer of memory chips, YMTC, 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 to do this," Tolmachev notes.
In his opinion, it is possible to resolve this conflict between the United States and China only in two cases: either the United States will abandon part of its restrictions against China in the technology sector (barter), or South Korea will support the United States, and then China will probably have to lift restrictions in order to continue the technical development of its economy.
For Russia, the aggravation of the confrontation between the United States and China indirectly benefits from the fact that 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 may prompt Beijing to sign a commercial contract faster for the purchase of Russian gas through the new Power of Siberia–2 gas pipeline through Mongolia, etc.
Secondly, Beijing's desire to become more self-sufficient in terms of technology is also in Russia's favor. It is advantageous to have such a partner – for the import of chips and semiconductors and for the creation of joint ventures in the future, so that we ourselves can grow technologically. "These actions of China can be interpreted as an independent position, including in the supply of chips to Russia," concludes Mironyuk.
Olga Samofalova