China ‘could come up with countermeasures’ as Japan’s chip export controls take effect: analyst

A worker inspects semiconductor chips at a factory in Yancheng, East China's Jiangsu Province, on April 14, 2023. Photo: VCG

A worker inspects semiconductor chips at a factory in Yancheng, East China’s Jiangsu Province, on April 14, 2023. Photo: VCG

Japan’s export controls on 23 key chip-making items took effect on Sunday. It comes as Japan blindly follows Washington’s lead in containing China. Chinese analysts said Japan’s irrational move would once again face its chip industry at Waterloo, as Japanese chipmakers strive to avoid a repeat of the defeat in the Japan-US chip war more than three decades ago.

Chinese analysts said China will take all necessary measures to safeguard its own interests, adding that the country has a number of countermeasures including potential bans on the export of strategic raw materials and restrictions on foreign chipmakers aiding the US’s malicious crackdown on China, and that the countermeasures “may come out soon.”

Japan in late March announced a draft revision to a ministry ordinance to its Foreign Exchange and Foreign Trade Act, adding 23 chip-manufacturing items that require government approval for export, which include equipment for cleaning, testing and lithography, a technology crucial to making cutting-edge chips.

Japan’s move follows the Netherlands’ new export controls on some advanced semiconductor tools on June 30 amid US pressure to cut off China from key chip-making equipment. In October last year, the US launched a wide range of export curbs on shipments of some high-end chips to China.

“The export control measures adopted by the Japanese government will bring greater uncertainty and damage to the global semiconductor industry that has been seriously disrupted by the US. However, Japan’s measures will return fire,” Da Zhigang, director of the Institute of Northeast Asian Studies at the Heilongjiang Provincial Academy of Social Sciences, told the Global Times on Sunday.

Without access to the huge Chinese market, Japanese chipmakers such as Nikon Corp and Tokyo Electron Ltd could suffer greatly, leading to less revenue to support their innovation and technology iteration and thus weakening the global competitiveness of Japanese companies, Da said.

The two companies did not comment when reached by the Global Times. However, it is reported that Japanese industry groups and businesses have submitted their concerns and grievances to the Japanese government which has not responded to the industry’s reasonable demands.

The Chinese mainland is the largest export market for Japanese semiconductor equipment manufacturers, with such exports expected to reach 820 billion yen ($5.7 billion) by 2022, accounting for about 30 percent of Japan’s total chip-making equipment exports, official data showed.

The Chinese side has repeatedly reiterated its strong opposition to Japan’s political interference in the semiconductor industry. Shu Jueting, a spokesman for China’s Ministry of Commerce, on July 13 blasted that Japan is politicizing economic issues and exaggerating the concept of national security to deliberately undermine cooperation with China in semiconductors and related industries.

“As one of the major producers of information and technology products as well as cars, China needs to import large quantities of chips to meet downstream production. This is normal commercial practice and part of world manufacturing and trade. There is no reason for Japan to request national security exceptions to defend its export control measures,” said Tu Xinquan, dean of the China Institute for WTO Studies at the Economics University of Beijing International Business Studies.

Hope in China

The global semiconductor industrial chain is one that contains extensive interdependence and global division of labor. Japan and the Netherlands joining the US strategy to exclude China from the global semiconductor industrial chain may unexpectedly lead global chipmakers to re-establish industrial chains to isolate the US, Japan and the EU, Ma Jihua, founder of Beijing DARUI Management Consulting Co and a veteran industry analyst, told the Global Times.

In general, US companies such as Qualcomm and Intel lead in chip design, European companies such as ASML provide advanced manufacturing equipment, Japan excels in semiconductor equipment in addition to materials and hardware integration, while South Korea’s Samsung and SK Hynix lead memory chip makers and the island of Taiwan dominates the foundry market, Ma said.

China enjoys advantages in upstream raw material products, components and packaging. China will be the largest single market for semiconductors in 2022, with sales of $180.4 billion, about one-third of the global total, according to SIA.

“Losing access to the massive Chinese market will present existing Japanese chipmakers with another Waterloo,” said Da, referring to the rapid decline of Japan’s semiconductor industry and the failure of past Japanese chip giants such as Toshiba due to a chip war initiated by the US in the 1980s.

Despite the Japanese government’s export restriction measures, Japanese semiconductor firms such as Nikon and Canon showcased their cutting-edge products at SEMICON China which closed in Shanghai on July 1.

The escalating US chip crackdown on China has already started to backfire. Major US chip companies have reportedly urged the Biden administration to hold off on further restrictions on chip exports to China to protect their profits in the world’s largest commercial market for chips.

Although US exports to China have lagged behind, ASML CEO Peter Wennink said on Wednesday’s earnings conference call that global demand for deep ultraviolet (DUV) lithography systems is influenced by macroeconomic factors, but the Chinese market has absorbed some of the declining demand in other markets over the past two years.

Strive for achievements

Amid the push for technological self-reliance and the spread of domestic substitutes to overcome the US containment and blockade, the second phase of the National Integrated Circuit Industry Investment Fund Co, also known as “Big Fund II,” has invested heavily in China’s semiconductor manufacturing, equipment and related materials and other important links, with a remarkable increase in upstream and domestic demand, as soon as possible to break bottlenecks and domestic demand.

“Recently, we surpassed the high-end chips of the US chip giant Nvidia in a single benchmark for image recognition on the international stage. This is the result of a step-by-step process, as we follow a different technological path to improve performance by optimizing algorithms and reducing the computational load,” said a manager of the domestic startup AI chipmaker in an interview with the Global Times in a recent condition of anonymity.

In the past five years, there has been a growing demand for domestic substitutes, strengthened coordination between upstream and downstream companies as well as the growing importance of authorities and investors attached to the high-tech sector. I believe Chinese chips will compete with US-made chips one day, the manager said.

The Chinese Commerce Ministry recently held a seminar with major domestic chipmakers, discussing the impact of the chip crackdown by the US and its allies on China, calling on the Chinese government to take effective measures to deal with it, domestic news site Caixin reported.

The ministry did not respond for comment on Sunday.

“China has abundant deterrents. For example, a potential ban on critical raw materials for manufacturing chips and targeted measures at foreign chip companies follow the moves of the US and Japanese governments on China’s presence,” Ma said, noting that “these measures may emerge soon.”

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