A move by Beijing to bar U.S. firm Micron Technology from selling memory chips to key domestic industries has ramped up tensions in an ongoing trade spat with Washington and lifted shares of firms that could benefit from the move.
China's cyberspace regulator said late on Sunday that Micron, the biggest U.S. memory chipmaker, had failed its network security review and that it would block operators of key infrastructure from buying from the company.
It did not provide details on what risks it had found or what products from the company would be affected.
The move was opposed by Washington but also helped stocks of Micron's rivals in China and South Korea, which are seen benefiting as mainland firms seek memory products from other sources.
"We firmly oppose restrictions that have no basis in fact," a spokesperson from the U.S. Commerce Department said in a statement on Sunday.
"This action, along with recent raids and targeting of other American firms, is inconsistent with (China's) assertions that it is opening its markets and committed to a transparent regulatory framework."
Tensions between Washington and Beijing have grown in recent months following raids and visits Chinese authorities made to U.S. corporate due diligence firm Mintz Group and management consultancy Bain.
Micron said on Sunday it had received the regulator's review and looked "forward to continuing to engage in discussions with Chinese authorities."
The company is the first U.S. chipmaker to be targeted by Beijing after a series of export controls by Washington on certain American components and chipmaking tools to block them from being used to advance China's military capabilities.
China launched the review in late March amid a dispute over chip technology and worsening relations between Washington and Beijing.
The move also comes shortly after Group of Seven nations agreed to "de-risk, not decouple" economic engagement with China and as U.S. President Joe Biden called for an "open hotline" between Washington and Beijing.
The U.S. Commerce Department said it would speak directly with authorities in Beijing to clarify their actions.
"We also will engage with key allies and partners to ensure we are closely coordinated to address distortions of the memory chip market caused by China's actions," the department said.
China's announcement on its Micron review helped boost shares in some local chipmaking-related firms on Monday, as state media reported that domestic players could benefit from the move.
Shares in companies including Gigadevice Semiconductors, Ingenic Semiconductor, and Shenzhen Kaifa technology opened up between 3% and 8%.
Micron's major rivals also saw their shares gain, with South Korea's Samsung Electronics and SK Hynix rising 0.7% and 2%, respectively, versus a 0.9% rise in the broader market.
Beijing has broadly defined industries it considers critical as ones such as public communication and transport but has not specified just what type of business these apply to.
China, the world's biggest semiconductor buyer, has gradually reduced its reliance on foreign-made chips in a multi-year campaign to boost its self-sufficiency.