Intel Faces Security Scrutiny in China Amid Allegations from Industry Group

Cybersecurity Association of China Calls for Reviews of Intel Products, Citing National Security Concerns

The Cybersecurity Association of China (CSAC), a prominent industry group closely linked to the Chinese government, has raised significant concerns over Intel’s (INTC) presence in China, alleging that the U.S. chipmaker has consistently jeopardized the nation’s national security and interests. In a detailed statement released on Wednesday via its official WeChat account, the CSAC recommended a comprehensive security review of all Intel products sold in China, highlighting vulnerabilities associated with the company’s technology.

National Security Allegations

The CSAC’s post underscores an escalating tension between China and the U.S., amid ongoing geopolitical disputes surrounding technology and trade. It specifically accused Intel of incorporating security flaws within its chips, particularly the Xeon processors widely utilized in artificial intelligence applications. The organization stated that these vulnerabilities could pose severe risks to the critical information infrastructure of China, echoing concerns that U.S. National Security Agency (NSA) backdoors could be embedded within the operating systems of Intel processors.

“Intel has major defects when it comes to product quality and security management, indicating an extremely irresponsible attitude towards customers,” the CSAC stated, urging the initiation of a network security review on Intel’s offerings in the country to safeguard China’s national security and protect the rights of Chinese consumers.

Implications for Intel

Intel’s China unit responded swiftly, asserting its dedication to product safety and quality. In a statement, the company emphasized its commitment to maintaining open communication with relevant authorities to address any concerns regarding its products. However, the ramifications of a potential security review could be significant, particularly as more than 25% of Intel’s revenue came from China last year.

Shares of Intel fell by 1.5% on Wednesday, reflecting broader market concerns following a disappointing report from chip equipment maker ASML (ASML). If the Cyberspace Administration of China (CAC), which has the authority to implement such reviews, decides to take action against Intel, it could lead to a reduction in the company’s market presence in China.

A Broader Context of Tensions

These allegations emerge at a time when the Chinese government is navigating a U.S.-led initiative to limit its access to critical chipmaking technologies and equipment. This initiative, which aims to curb the modernization of China’s military capabilities, has prompted fears of a tit-for-tat trade conflict.

Investment analyst Dan Coatsworth of AJ Bell commented, “Relationships between the U.S. and China are fragile, and the more discussions about trade restrictions and tariffs arise, the more likely it is for retaliatory actions to occur.”

Last year, the CAC took similar measures against Micron Technology Inc. (MU), blocking domestic infrastructure operators from purchasing its products after failing a network security review. A comparable review of Intel products could hinder the company’s operations significantly, especially as China has struggled to find alternatives to advanced AI chips, which are predominantly sourced from Nvidia (NVDA), now banned from export to China.

Looking Ahead

Intel has recently secured contracts for its Xeon processors from various Chinese state-linked agencies for AI projects, highlighting the complexity of its business landscape in China. However, the ongoing allegations and potential regulatory scrutiny may present considerable challenges for the company moving forward, as it navigates the treacherous waters of international relations and market demands in an increasingly polarized global environment.