Intel hit with security probe in China as tech war escalates

China has launched a security review of Intel processors through its cybersecurity watchdog, marking the latest escalation in the ongoing technology confrontation between Beijing and Washington. The Cyber Security Association of China (CSAC) announced on October 16 that it would examine Intel CPUs sold in mainland China, citing “frequent vulnerabilities and high failure rates.”

Intel’s China division quickly responded a day later, affirming its commitment to “strictly abide by the laws and regulations of the country” while emphasising its focus on product safety and quality.

Market impact and timing

The stakes couldn’t be higher for Intel, which derived 27.4% of its revenue from China in 2023. This substantial market exposure comes at a particularly challenging time for the company, which has recently weathered declining earnings and implemented workforce reductions. The situation is further complicated by US export controls that have already restricted Intel from selling its most advanced products to Chinese clients.

The timing and nature of this security review follow a pattern established in China’s previous actions against US tech companies. In 2023, China employed similar tactics against Micron Technology, leading to significant market disruption. After a cybersecurity investigation concluded that Micron’s products posed “network security issues,” Chinese authorities banned companies in critical infrastructure sectors from purchasing Micron products, resulting in multi-billion dollar market impacts.

The broader context

CSAC’s criticism extends beyond security concerns. The association highlighted Intel’s position as a significant beneficiary of the Biden administration’s CHIPS and Science Act, which it characterised as unfairly discriminating against China’s semiconductor industry. The group also took issue with Intel’s supplier policies prohibiting the use of products and labour from China’s Xinjiang region – a requirement aligned with US law but contested by Chinese authorities.

The scrutiny comes as Chinese domestic CPU manufacturers such as Loongson, Zhaoxin, and Hygon have made significant strides. The companies have reportedly captured over 50% of the market share in state-owned agencies and public procurement markets, suggesting China’s growing capability to reduce dependence on non-domestic processors.

China has already begun this transition, reportedly directing major state-owned telecommunications carriers to phase out foreign semiconductors. The push for self-sufficiency and regulatory pressure placed on foreign firms suggests a coordinated strategy to respond to US technology restrictions while advancing domestic alternatives.

Industry implications

The development could accelerate several trends: China’s push for technological self-reliance, the reconfiguration of global supply chains, and the increasing bifurcation of the worldwide technology ecosystem into US and Chinese spheres of influence.

For Intel and other US technology companies, the developments underscore the delicate balance between complying with US export controls and maintaining access to the crucial Chinese market. As tensions continue to simmer, the technology sector appears set to remain at the forefront of US-China strategic competition.

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Tags: Intel