Chinese Conditions on SK Hynix-Intel Deal Demands CFIUS Re-Review

See updated version of this story here.

Stipulation to “Help a Third Party Competitor” Enter the Market Requires New Investigation

Thousands of words have been spilled by China Tech Threat and our allies demonstrating that semiconductor design and manufacture are among the U.S.’ most important strategic assets.

The National Counterintelligence and Security Center recently reaffirmed this by identifying semiconductors as one of five “technologies that may determine whether America remains the world’s leading superpower or is eclipsed by strategic competitors in the next few years.” (See the NCSC fact sheet here.)

Accordingly, no one was surprised when CFIUS reviewed the sale of Intel’s NAND memory and storage unit to South Korean-based SK Hynix.

As you will recall, the purpose of the Committee on Foreign Investment in the United States (CFIUS) is to protect malicious foreign investment targeting national security technology. (CTT extensively analyzed CFIUS’ increasing scope and resources in a 2020 white paper co-authored with Robert Pittenger who, as a Member of Congress, had steered the law to strengthen CFIUS.)

Fierce Electronics reports “CFIUS is prohibited by law from publicly disclosing any information filed with the committee but does inform petitioners such as SK Hynix.” Thus, we know from SK Hynix’s own press release that they received CFIUS approval last March.

Now fast-forward nine months to December 2021. Multiple press accounts indicated just a few days before Christmas that China’s antitrust regulator, the State Administration of Market Regulation (SAMR), approved the SK Hynix-Intel deal.

But there’s a hitch: China approved the deal after stipulating six conditions. SAMR’s press release (available here, in Mandarin) identifies one especially troubling prerequisite: The necessity to “Help a third-party competitor enter” the market.

Of course, SAMR does not identify this third party, so we do not know, for instance, if the beneficiary is Yangtze Memory Technologies (YMTC).

Scores of policymakers have explained how the People’s Republic of China favors YMTC at great risk to the U.S. For example, Representative McCaul and Senator Hagerty called YMTC “the PRC state-owned national champion for memory chips with ties to the CCP military.” Similarly, the Biden White House’s June 2021 report noted that YMTC “is emerging as China’s national champion memory chip producer” having received $24 billion in subsidies (p. 62).

For our part, CTT published a white paper demonstrating the risk of YMTC in late 2020, but many other respected authorities have expressed similar concerns including CNAS’ Martijn Rasser, Foundation for Defense of Democracy’s Emily de La Bruyere, ITIF’s Stephen Ezell, SOSi’s James Mulvenon, CSIS’ Jim Lewis, and CPA’s Jeff Ferry.

Given the many concerns about this unknown beneficiary, we believe it is important that CFIUS re-review their own prior approval with a fresh set of questions to defend U.S. technological assets, including NAND and DRAM.

We hope they initiate an inquiry soon as SK Hynix plans to quickly pay $7 billion of the $9 billion total sale price, making a blockade increasingly difficult.