The US-Japan-Netherlands chip export restrictions are leaving China uneasy. Here’s why

• The China Semiconductor Industry Association opposes actions that would exclude its domestic chip market from global innovation.
• It believes that the US-led pact with Japan and the Netherlands would restrict China’s access to chip-making technology, posing a threat to the entire industry, marking a step back in the era of free trade.

After months of dialogue and persuasion, Japan and the Netherlands have finally agreed to a US request to tighten their export controls of chip manufacturing equipment and technologies to China. Although neither of the parties has disclosed details of the deal, Tokyo and The Hague have reportedly joined hands to further strengthen the Washington-led restrictions meant to cripple China’s technological rise in the global arena.

When the US first announced its most aggressive measures against China last October, experts reckoned that the effort could backfire without buy-in from foreign partners and allies. Given the complexity of global supply chains, assistance from allied semiconductor states – especially fellow chip-making tool producers Japan and the Netherlands – is critical to restrict Chinese access to the materials, equipment, and advanced chips that enable production. 

In short, if the US withholds those exports but Japan and the Netherlands fill the gaps, US controls remain a navigable inconvenience for China. Under US pressure, the Netherlands has banned ASML’s most advanced extreme ultraviolet lithography systems from shipping to China. For context, ASML is the Dutch maker of lithography systems and is the only company in the world that makes extreme ultraviolet lithography (EUV) machines.

EUV machines are also the most sophisticated type of lithography equipment required to make every advanced processor chip in the world today. According to a statement from ASML, which plays a vital role in the three-party attempt to contain China’s chip ambitions, the agreement between the three nations is not finalized. Still, it will cover advanced chip manufacturing technology, “including but not limited to advanced lithography tools.”

In its latest annual report, ASML noted that implementing new restrictions would take months. A verbal retaliation from a Chinese state-backed semiconductor trade group followed that statement. The China Semiconductor Industry Association (CSIA) warned that the US-led pact threatens the entire industry and marks a step back in the era of free trade.

“CSIA firmly protests against such acts that destroy the global semiconductor ecosystem,” the 744-member trade body said in a statement published on its website, condemning “inappropriate intervention by governments and authorities.” It also called for increased support for globalization and resistance to efforts that destabilize supply and demand. 

“We oppose such acts that exclude China’s semiconductor industry from the global innovation system and free-market competition,” the group added. Before that statement, Chinese Foreign Ministry spokeswoman Mao Ning at a briefing on January 30, said the US-led agreement is harmful to all concerned parties and threatens the stability of the global semiconductor supply chain.

So far, China’s most vigorous response to the US government’s trade restrictions was its decision in December to file a complaint with the World Trade Organization’s dispute-settlement body to challenge what the Ministry of Commerce described as “a typical practice of trade protectionism.” 

As its presence in global chip value chains remains weak, China has few options to mitigate the risks. The country’s sole lithography systems maker Shanghai Micro Electronics Equipment (Group) Co was added to Washington’s Entity List in December, restricting its access to US technologies.

On another note, ASML stated that it recently discovered that a former employee in China had misappropriated data related to its proprietary technology. According to a CNBC report, the Dutch firm said that it does not believe the alleged misappropriation is material to its business.

“We have experienced unauthorized misappropriation of data relating to proprietary technology by a (now) former employee in China,” ASML said in its annual report. “However, as a result of the security incident, certain export control regulations may have been violated. ASML has therefore reported the incident to relevant authorities.”

ASML did not expand on the details but reports state that the data that was misappropriated involved documents.

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