SK Hynix’s proposed purchase of Intel’s NAND memory chip division could create another avenue for the Chinese government to steal American-made technology, panelists cautioned during a roundtable forum yesterday hosted by China Tech Threat, “CTT Quick Cut: Does the SK Hynix Deal Pose a National Security Risk?”
Memory chips are a bedrock component to operate sophisticated networks, like defense systems. Much of this technology was developed by U.S. companies, and for decades the United States has enjoyed a competitive advantage in semiconductor design and manufacturing. But as the Chinese government has worked to accelerate its indigenous capabilities, often illicitly, America’s lead has narrowed.
“What we have seen in the last 30 years is step by step, the design, the manufacture and the selling of these products [semiconductors and semiconductor equipment] is moving to China,” noted Jeff Ferry, Chief Economist at the Coalition for a Prosperous America. “At some point, on the military side, they will be better than us if this trend continues.”
“We’ve got to draw a line in the sand somewhere and say, Stop, no more shifting all of our technology,” Mr. Ferry added. “This is a great moment to say… Intel and SK Hynix cannot agree to this deal unless it is very clear they are committing themselves as corporations not to forcibly transfer technology to China and create a competitor to themselves.”
Nazak Nikakhtar, who served as Assistant Secretary for Industry and Analysis at the U.S. Department of Commerce’s International Trade Administration, agreed.
“Semiconductors are part of China’s national strategy… The transfer of semiconductor technology from the United States to China is what enabled China to race ahead in hypersonic [missiles] – two years ahead of us,” Ms. Nikakhtar explained.
“What we did several years ago for the benefit of one or two companies now has put the entire world in incredible jeopardy… At what point are we willing to scale back to protect the national security interests of not only this country, but the entire world?”
Last March, SK Hynix reported that the Committee on Foreign Investment in the United States (CFIUS) approved its proposed $9 billion acquisition of Intel’s NAND memory chip business. In December, China’s anti-trust regulator, the Chinese State Administration of Market Regulation (SAMR), also approved the deal, but with six stipulations—including that SK Hynix “help a third-party competitor enter” the market.
In a letter to Dr. Layton this week, SK Hynix confirmed the third-party competitor is not YMTC. “I greatly appreciate their outreach. However, I still have concerns,” Dr. Layton warned. “The third party is still not yet named, and the terms are quite general… We cannot be naïve about what the Chinese government can do for leverage when it has foreign companies and their strategic semiconductor assets in that country.”
Ms. Nikakhtar echoed that concern. “China is going to leverage everything they can to benefit from any transaction… This goes beyond Civil-Military Fusion… There is heavy-handed [Chinese Communist Party] involvement” in every sector of China’s economy.
“Whether they have or haven’t said it in this agreement, what China wants is for 70 percent of chips consumed in China to be made by Chinese companies,” Mr. Ferry added. “No other country has such explicit targets that are so anti-internationalist.”
The U.S. government “very much has the legal authority” to bring the sale back under CFIUS review, Ms. Nikakhtar said—which China Tech Threat will discuss further in the next post in this series.
“China is not entitled to put conditions to force Western companies to transfer valuable IP technology as the price to enter the Chinese market,” Mr. Ferry concluded. “We cannot allow China to get a strangle-hold on this technology. It’s bad for the ordinary American worker.”