The move risks further exacerbating tensions between the Biden administration and President Xi Jinping’s government, which have worsened in recent months over the security of Taiwan and the alleged spy balloon shot down over US territory in February.

The Chinese government said in a statement Friday that it’s conducting the review to ensure the integrity of its information infrastructure supply chain, prevent network security risks and maintain national security. Shares of Micron, which counts on mainland China for about 11% of its sales, fell 4.4% in New York to $60.34. It was their worst one-day decline in more than three months.

Boise, Idaho-based Micron said in a statement that it was in communication with the Cyberspace Administration of China concerning the inquiry and that the company is “cooperating fully. Micron is committed to conducting all business with uncompromising integrity, and we stand by the security of our products and our commitments to customers.”

The world’s biggest economies increasingly see each other’s tech sectors as risks to national security. That has sent Washington rushing to secure its global supply chains and seeking to fence off advanced technology.

The US has already blacklisted Chinese tech firms, sought to cut the flow of sophisticated processors and banned its citizens from providing certain help to the country’s chip industry.

Washington has also enlisted allies, with Japan saying earlier on Friday that it will expand restrictions on exporting leading-edge chipmaking technology, joining similar US-led restrictions by another key supplier, the Netherlands. The move also comes as the US tries to play down the visit this week of Taiwan’s President Tsai Ing-wen, which Beijing has protested.

“It’s possible that the investigation of Micron is intended to pressure the US and its allies to tread lightly on export controls,” said Gerard DiPippo, senior fellow with the Economics Program at the Center for Strategic and International Studies in Washington. “It’s even more likely that Beijing is legitimately worried about China’s reliance on Micron chips, or really any US technology. Expect more actions like this going forward.”

The US State Department and Commerce Department’s Bureau of Industry and Security declined to comment on the Chinese action.

Tech Battle

Washington last year unleashed strict export controls on semiconductor technologies to China, and has spent years targeting Huawei Technologies Co., a leader in telecommunications infrastructure that the US has deemed a national security threat with ties to the Chinese government.

As well, US authorities have alleged that Micron was the victim of economic espionage by Chinese chipmaker Fujian Jinhua Integrated Circuit Co., which was blacklisted by Washington more than four years ago amid the accusations, which include it conspired to steal trade secrets from the American firm. A trial is expected later this year.

“This seems more political in nature than anything, a rebuttal to recent US actions. In terms of specific security risks for the products sold by Micron, I’m skeptical there’s anything there,” said Abhinav Davuluri, equity strategist at Morningstar. “China has been investing aggressively to build out its own semiconductor ecosystem, and where we think about areas where they can be most successful, memory is one of them.”

The Biden administration has been wielding the export control power of the Commerce Department, headed by Gina Raimondo, as one of its main tools to stifle China’s technological ambitions and bolster national security. The US includes more than 600 Chinese establishments on the Entity List, which blocks them from buying technology from US suppliers unless they get a special export license from Commerce.

China’s review also comes as US lawmakers are weighing a ban on TikTok, the social-media platform owned by Beijing-based ByteDance Ltd., over fears of China’s ability to access the data of million of Americans and influence users. TikTok’s chief executive officer testified before Congress last week but failed to alleviate concerns.

Industry Survivor

China’s probe could threaten a potential comeback for Micron and other memory chipmakers after a rough stretch. Over the past year, a steep drop in consumer demand spurred Micron’s customers to slash orders. China’s exit from Covid-related restrictions was seen as one catalyst to help the industry, as gadget makers would be able to bring manufacturing plants back to normal rhythm.

Earlier this week, Micron issued a better-than-expected outlook for the quarter, forecasting sales of as much as $3.9 billion in the fiscal third quarter compared with an average of analysts’ estimates of $3.75 billion. CEO Sanjay Mehrotra cited expectations for improvements in the balance of supply and demand in the industry.

The company is the last remaining maker of computer memory based in the US, having survived brutal industry downturns that forced larger companies such as Intel Corp. and Texas Instruments Inc. to bow out. The company has relatively little exposure to China compared with its peers, and it doesn’t use the country as a major manufacturing base.

Micron’s revenue share from China is less than half that of Korean rival SK Hynix Inc. While the limited footprint stands to cushion Micron against any fallout, it could still exacerbate supply chain woes. Much of the world’s electronics and component systems come through factories in the world’s second-largest economy.

“The biggest issue for Micron has been the global softness in consumer device sales,” said James Kelleher, analyst at Argus Research. “As that market recovers, it’s conceivable, if Micron were proscribed from selling to China, that they could make up lost sales in other markets. But it would affect them.”  BLOOMBERG