Export restrictions by Japan are seen as ‘major concern’

Tokyo’s alignment with the West on imposing curbs ‘will damage China’s self-sufficiency goal’

It is little surprise that Beijing is urging Japan to end its planned export controls on semiconductor technology, with China’s chip sector set to come under huge pressure from Tokyo’s growing cooperation with the United States on trade restrictions, analysts have said.

Under Japanese measures slated for next month, domestic companies will need a licence to sell 23 types of chip-manufacturing technology to a foreign country, including cleaning, deposition, lithography and etching equipment. This follows an agreement by the US, Japan and the Netherlands to limit the export of advanced chip-making equipment to China.

Brady Wang, a semiconductor analyst with market research firm Counterpoint Research, said Tokyo’s alignment with the US and the Netherlands would be particularly damaging as China sought to source new semiconductor equipment that could be used to produce more advanced chips.

“China currently has the capability to produce chips at 14-nm, however, its capacity is very limited,” Wang said. “Given further exertions from the US and Japan, I don’t believe they will have the capability to increase their capacities in 20-nm and below [nodes].”

A nanometre is a common measurement used to classify semiconductor industry technology, with fewer nanometres generally meaning more advanced technology. South Korea’s Samsung Electronics and Taiwan Semiconductor Manufacturing Co announced the production of 3-nm chips last year.

Currently, the largest companies that sell equipment used to produce cutting-edge chips are in the US, the Netherlands and Japan – such as US-based Applied Materials, the Netherlands’ ASML and Japan’s Tokyo Electron. According to UN Comtrade data, Japan was the top exporter of semiconductor manufacturing equipment to China last year.

However, Wang said the precise impact from Japan’s export control measures remained to be seen, with time still remaining for China and Japan to work out some exemptions. The US Department of Commerce gave South Korea’s SK Hynix and Samsung one-year exemptions on existing export controls, which are set to expire in October.

Japan, similar to the Netherlands, has not explicitly referenced China in its export control announcements. Instead, Tokyo officials have cited the Foreign Exchange and Foreign Trade Act, which regulates the export of Japanese weapons and other goods that can be converted into military applications.

Still, Chinese officials and some experts have seen Japan’s plans as a signal that Tokyo is following the US lead in the semiconductor trade war, placing long-term strategic rivalry over short-term economic cost.

At the Asia-Pacific Economic Cooperation conference in Detroit last Friday, which included members from 21 economies in the Pacific Rim, Commerce Minister Wang Wentao reportedly opposed Japan’s export curbs. A statement from the minister on Monday called the policy a wrongful practice that “seriously damaged” international economic and trade rules and hurt the foundation of industrial development.

Meanwhile, at the conference, Japan’s Minister of Economy, Trade and Industry Yasutoshi Nishimura and his American counterpart Gina Raimondo agreed to further boost cooperation on the development of the world’s next-generation of semiconductors.

A joint statement released by the Japanese ministry and the US commerce secretary on Monday said they would encourage semiconductor research centres of the two countries to work together in creating a road map for the development of technology and human resources associated with chips.

The agreement also followed a three-day G7 Summit held in Hiroshima last month, in which Japanese and US officials agreed to “de-risk” rather than “decouple” from China’s economy, emphasising semiconductor supply chain security.

Asked about Japan and the US’ cooperation agreements on Monday, spokeswoman of the foreign ministry in Beijing Mao Ning said: “It is China’s consistent belief that the cooperation between countries should not target any third party, and we oppose putting up exclusionary blocs and engaging in discriminatory and exclusive cooperation.”

While Japan’s controls could restrict some sales by major Japanese companies such as Nikon and Tokyo Electron, Trade Minister Nishimura stated that they would have a limited impact on domestic corporate earnings.

In an earnings report in March, Tokyo Electron said about 24 per cent of its sales this year came from China, a decrease of 2 per cent from the previous year. However, the company expects that sales in China will exceed 30 per cent next year because of the growing mature node market in China.

Mature nodes are generally defined as less advanced chips, above 28-nm, which require older manufacturing processes. Since being put on the US entity list for export controls in 2020, China’s largest chip maker Semiconductor Manufacturing International Corporation (SMIC) has ramped up production of mature nodes, posting record revenue last year.

We oppose putting up exclusionary blocs and engaging in discriminatory … cooperation

MAO NING, FOREIGN MINISTRY