China's cybersecurity landscape took a significant turn as the Cybersecurity Association of China (CSAC), a group with ties to the Chinese state, urged a security review of Intel products sold within the country. The association's accusation that Intel has repeatedly harmed China's national security has added a new layer of tension between the U.S. and China amid their ongoing tech rivalry. On Wednesday, the CSAC released a statement via its official WeChat account, calling for a comprehensive investigation into Intel's products, raising concerns about alleged vulnerabilities and hidden surveillance capabilities embedded within its processors.
The CSAC, though not a direct government entity, is closely aligned with Beijing's policies. The group's call for a review may prompt action from the Cyberspace Administration of China (CAC), the country's powerful regulator overseeing internet and data security. The CAC previously targeted U.S. chipmaker Micron Technology, banning its products after a security review last year. If Intel's products face a similar investigation, it could have severe implications for the company, given that over a quarter of its revenue in 2023 came from the Chinese market.
Intel's shares dropped by 2.7% in premarket trading on U.S. exchanges following the CSAC's statement, mirroring broader market concerns triggered by a disappointing update from chip equipment maker ASML. The potential for a prolonged review could significantly affect Intel's sales in China, an outcome that investors are wary of, particularly amid the current tech trade tensions.
In its post, CSAC claimed Intel's products, including its Xeon processors designed for artificial intelligence tasks, are riddled with security flaws. The association alleged these chips have backdoors allegedly linked to the U.S. National Security Agency (NSA), arguing that such vulnerabilities compromise critical information infrastructures globally. "The use of Intel products poses a serious risk to national security," CSAC stated, suggesting that these backdoors allow unauthorized access to data and surveillance, which could impact not only China but other nations relying on Intel technology.
The allegations come at a time when China is under increasing pressure from the U.S. to halt its technological advancements, especially in chipmaking. Washington has implemented strict export controls, preventing U.S. companies like Nvidia from selling advanced AI chips to China. In response, Beijing has been adopting its own measures, such as phasing out Intel and AMD chips from government-use computers and servers, as part of its broader strategy to lessen dependence on American technology.
Dan Coatsworth, an investment analyst at AJ Bell, commented on the escalating situation, stating, "The fragile relationship between the U.S. and China is now characterized by a tit-for-tat approach, with each side likely to retaliate as trade and tariff restrictions grow."
Intel has not responded to the recent allegations, but the company's position in China is undeniably precarious. The tech giant previously secured substantial orders for its Xeon processors from several Chinese state-linked agencies for AI projects. However, if a review leads to a ban, it could severely impact Intel's market share and revenue prospects in the Chinese tech landscape, which is already facing shortages of AI chips due to the ban on Nvidia's high-performance products.
CSAC's statement also highlighted that Intel has allegedly benefited significantly from the U.S. CHIPS and Science Act, which aims to boost domestic semiconductor production and reduce reliance on Chinese manufacturing. The group accused Intel of using this legislation as leverage to suppress China's tech industry, aligning itself with Washington's strategy to limit Beijing's technological capabilities.
The timing of these accusations is particularly striking, as they follow Chinese President Xi Jinping's recent statement advocating for improved relations with the U.S. Xi called for "friendship" and "win-win cooperation," emphasizing the global importance of strong China-U.S. ties. In his letter to the National Committee on U.S.-China Relations, Xi stated, "China has always handled China-U.S. relations in accordance with the principles of mutual respect, peaceful coexistence, and win-win cooperation." Yet, despite these diplomatic overtures, tensions remain high as both nations prioritize their national security and economic interests.
The CSAC's allegations against Intel illustrate the ongoing strain in U.S.-China relations over technology. As the world's two largest economies continue to clash, both countries have taken steps to shield their technological and economic security. The U.S. has enacted policies to curb China's access to advanced technology, while China has retaliated with its own restrictions, such as banning Micron's products and phasing out U.S. microprocessors from government use.
Amid this backdrop, Chinese state media reports indicate a growing push for indigenous technological development to minimize reliance on foreign technology. Should China's cyberspace regulator proceed with an Intel review, it could further complicate U.S.-China business ties, particularly in the critical tech sector. The CAC's previous action against Micron serves as a precedent for how the Chinese government might respond if it deems Intel's products a security threat.
