Standing shoulder-to-shoulder with shovels in hand, executives from U.S. memory chipmaker Micron and Chinese officials last month kicked off construction of a new semiconductor plant in the north-central manufacturing hub of Xi’an. 

The testing and packaging plant, which will create 500 jobs and is part of Micron’s $602-million investment plan in China, highlights the company’s “unwavering commitment” to the Chinese market, said Sanjay Mehrotra, Micron’s chief executive. “The best is yet to come,” he added.

Mehrotra’s optimistic speech belies the pickle in which Micron has found itself in the last year. Last May, weeks before it announced plans for the new plant, Beijing barred operators of key infrastructure projects from buying Micron’s products, citing network security risks — a move U.S. Commerce Secretary Gina Raimondo described as “plain and simple, economic coercion”. The restriction threatens half of the revenue Micron earns from China each year, and hence a low double-digit percent of its global total, according to the company. 

Opening a new plant in Xi’an is part of a delicate balancing act Micron is performing in response, both commercially and politically. The investment signals its desire both to steady relations with the Chinese government and remain near to its customers in China, a critical market it cannot afford to lose. All the while, it is making bigger investments elsewhere — particularly back in the United States — to diversify its manufacturing footprint and take advantage of government subsidies in countries where it is receiving a warmer welcome. 

“Micron’s main strategy has been to not go as all in on China as the other semiconductor companies,” says Antonia Hmaidi, a senior analyst at Berlin’s Mercator Institute for China Studies (MERICS), comparing its approach to its South Korean rivals Samsung and SK Hynix. “They are really trying to future-proof their business to any sort of eventualities that might happen with further China-U.S. decoupling.”

The Xi’an plant is “part of a strategy that we have planned to implement for some time,” a Micron spokesperson told The Wire China. “China remains an important market for Micron and the semiconductor industry overall.”

Certainly, China’s growing consumer electronics market still offers great potential for DRAM, a type of memory chip in which Micron specializes. “Between cars, PCs, phones, other devices from toys and gadgets to smart home appliances, essentially, all kinds of things are using DRAM,” says Bob O’ Donnell, chief analyst at the California-based consultancy Technalysis Research. 

To tap into that, Micron has to continue to be close to where its customers are. The packaging and testing of DRAM and other chips that workers at its plant in Xi’an will carry out is a labor-intensive, but low value-added step that is unlikely to stoke strategic concerns in either Beijing or Washington. By contrast, Micron shut down the DRAM design team in its Shanghai research center in 2022, which, according to a report by Nikkei Asia, was due to fears of technology leaks.

For now, Micron maintains an edge in DRAM chipmaking over its Chinese competitors, whose advances have been slowed by curbs the U.S. imposed first in October 2022 on exports of technologies key to the manufacturing process.

“It’ll be difficult for these local makers to reach the area where they could replace foreign chips in the foreseeable future, say three to five years,” says Avril Wu, senior research vice president with the research company Trendforce. 

At any rate, to stay globally competitive in the memory chip industry, Micron needs to keep a foot in China, experts say. 

“Semiconductors are a scale game, you go big or go home. China remains a significant revenue contributor to multinational semiconductor vendors,” says Woz Ahmed, a former semiconductor executive and managing director of the consultancy Chilli Ventures. “No company wants to explain to its shareholders why it has a China-sized hole in its revenues.” 

Micron boss Mehrotra has been making other moves to smooth ties with China, such as meeting with Commerce Minister Wang Wentao last month in Beijing. The company also settled an intellectual property lawsuit with Chinese competitor Fujian Jinhua Integrated Circuit Co in December.

Despite all these efforts, Micron and other U.S. chipmakers could face an uphill battle in China longer term.

As part of China’s push for self-sufficiency in tech, officials have ordered top telecom firms to replace foreign chips with domestic ones by 2027 in a move that will affect Intel and Advanced Micro Devices, The Wall Street Journal reported recently. The trend of phasing out foreign chips may extend to memory chips, which are less sensitive, but more easily replaceable than logic chips. “China’s current environment is to localize as much as possible,” says Hmaidi, of MERICS.

What we’re seeing now is de-risking actually includes continuing to invest and trying to grow their businesses in China.

Sam Bresnick, a research fellow at Georgetown’s Center for Security and Emerging Technology

And while Beijing’s ban on sales of Micron products is for now limited to critical infrastructure, there is concern that its other Chinese customers could eventually come under pressure to switch to other suppliers. 

This is where Micron’s hedging strategy comes in. The investment it’s planning in Xi’an currently still pales in comparison to the money it is plowing into other countries. 

In India, Micron is building its first plant, a $2.75 billion assembly and testing facility that will start operation later this year: the company is injecting $825 million with the state and local government chipping in the rest. In Japan, Micron is receiving an additional $1.3 billion in government subsidies, covering 40 percent of the costs of a new factory in Hiroshima that is expected to start churning out advanced chips next year.

Micron’s commitments in the U.S. dwarf even these plans. In 2022, the company announced an investment of up to $100 billion over two decades for a megafab in Syracuse, New York state, while construction of a $15 billion DRAM fab in its headquarters in Idaho began last October. Micron is set to receive $6.1 billion in grants under the CHIPS and Science Act for these projects, Senator Chuck Schumer announced last week.

As these fabs come online, they will eventually mean the U.S. accounts for 60 percent of Micron’s output — up from 10 percent currently — and bring the country’s share of global memory production from 2 percent to 15 percent, Mehrotra said in an interview with CNBC last October.

Micron’s strategy is in line with that of other American tech firms, such as Apple and Microsoft, which are still selectively expanding in China to capitalize on the world’s second largest economy, while making the majority of their investments elsewhere. 

“What we’re seeing now is de-risking actually includes continuing to invest and trying to grow their businesses in China,” says Sam Bresnick, a research fellow at Georgetown’s Center for Security and Emerging Technology. 

“Despite the deteriorating business environment in China, the economic troubles the country has, and difficult bilateral US-China relations, some companies are still seeing business opportunities in China.”

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