On Jan. 27, an agreement was reached between the United States, Japan and the Netherlands to restrict the export of some deep ultraviolet (DUV) lithography machines to China. It is a milestone in U.S. President Joe Biden’s crackdown on China, Western media said. Concrete sanctions remain concealed, but they are likely to include strengthening the ban on exports of extreme ultraviolet (EUV) lithography machines, and possible export controls over the latest generation DUV lithography machines, but with older DUV models probably excluded.
How do these sanctions affect China’s chip industry?
First, as an additional restriction on advanced chip exports to China, it completes the closed loop for the West’s tech crackdown on China. The West has significant control over the global semiconductor industry. In particular, the United States is making concerted efforts to maintain a controlling position over the technology, so other western countries follow its lead. In fact, western nations have introduced forky methods and scopes of sanctions on China, but they all agree with the tech crackdown.
Therefore, the latest export controls are no surprise. And they are just an addition to existing restrictions that have already had a severe impact on China’s semiconductor industry.
Other restrictions have already been imposed on exports of advanced technology to China. In addition to lithography machines, exports of other equipment and technologies such as U.S.-made processors to China have been banned by Washington. Equipment imported from the U.S. accounts for around 30% used in China’s chip industry, including epitaxy, etching and membrane equipment. These previous U.S. sanctions already dealt a heavy blow to China’s advanced chipmaking industry. The new alliance merely intensifies the restrictions. Thus, these sanctions will not cause a significant overflow effect.
Furthermore, these may be the last curbs against China’s advanced chipmaking sector. Despite their negative impacts, they will catalyze the sector to be more self-reliant. Of course, it will take time and require perseverance to address challenges. Chip manufacturing is like a marathon with no finish line, and all we can do is push on with pragmatic steps. As said by the CEO of the world’s leading lithography machine firm ASML Holding NV, it will take time for China to develop its own technology in advanced chipmaking machines, “but ultimately they will get there.”
It is do-or-die time for China to advance its semiconductor industry. Of course, there are challenges to overcome.
The current grim environment around global relations makes it harder for the necessary international cooperation. For example, a single ASML EUV lithography machine consists of more than 100,000 parts supplied by more than 5,000 businesses from dozens of countries. The new export controls on lithography systems make it difficult for China to get external assistance in the manufacture of lithography machines.
The latter require an extremely complex manufacturing process that is closely tied to chipmakers, as well as extensive involvement and joint research and development conducted by customers. China has some way to go before it has a leading role in this process.
Many difficulties still lie ahead. Success in the development of DUV and EUV does not amount to solving problems in core technologies. Integrated circuit manufacturing is a huge project calling for expansive efforts of industries and national strength.
China has made great progress in the chip industry over the past few years, but still, we should clearly realize the difficulty of improving the whole industry and must consider how to maximize limited resources. Currently, China should offset an array of weaknesses in semiconductors while reinforcing its strong points. It should also learn from successful experiences and focus on developing key links to drive the development of other links. Failure to pool resources is a waste of resources, which will make the goal difficult to achieve.
The production of advanced lithography machines in a harsh environment requires great wisdom, pragmatism and professionalism.
Following the deal between the U.S., Japan and the Netherlands, some Japanese politicians are concerned that China will retaliate against Japan, and suggest that Japanese companies look for opportunities in other markets.
Countermeasures are necessary, but facing Western sanctions, China does not have to disassociate itself from the global market. In fact, it must not cut itself off from international industrial chains in a fit of pique.
Instead, Chinese industries should tighten cooperation with global supply chains. Even if China cannot get the most advanced DUV machines, it still needs continued support in mature technologies from the Netherlands and Japan. Chinese industries should show a positive attitude toward international supply chains and actively look for partners abroad.
International cooperation has always been key to China’s technological advances. We should therefore strive to work with partners and cherish any opportunity to cooperate with western businesses that we can find.
China should design classified measures for the international semiconductor industry chain. For businesses with a friendly attitude, especially those whose processes invested in China are more advanced than the best process in the mainland, the government should offer subsidies while requiring a certain ratio of Chinese investment so as to promote the development of its own supply chains. Businesses that show a bad attitude should be punished. However, China must make practical decisions and not be influenced by emotion.
In short, any decision and plan should be made without being impacted by emotions. For example, restrictions on lithography machines are the most severe form of afront to China’s chip industry and are a product of China-U.S. competition in global industrial chains. But what China’s semiconductor industry should do is to take measures to combat this while seeking cooperative opportunities with international supply chains to create a fairer, more open and competitive business environment. For those international companies willing to cooperate, China should show them its willingness and support.
Gu Wenjun is semiconductor industry expert, ICwise chief analyst and former chief analyst in semiconductors at iSuppli/IHS.
The views and opinions expressed in this opinion section are those of the authors and do not necessarily reflect the editorial positions of Caixin Media.
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