Dutch Government Blocks China From Access to Key Semiconductor Technology

ASML Holding logo is seen at the company's headquarters in Eindhoven, Netherlands, on Jan. 23, 2019. Eva Plevier/Reuters

The Dutch government agreed to block China from having access to chip manufacturing technology, heating up a longstanding conflict over semiconductors with Beijing.

Chinese Communist Party (CCP) authorities slammed The Hague and accused the European Union state of siding with the United States in an ongoing chip war.

The Minister for Foreign Trade and Development Cooperation, Liesje Schreinemacher, told the Dutch parliament on March 8, that the proposed limitations on CCP access to sensitively designed advanced equipment using ultraviolet light, to etch circuits on processor chips, was essential on security and human rights grounds.

ASML Holdings, which is based in Veldhoven, in the Netherlands, is the world’s only producer of equipment using extreme-ultraviolet light (EUV),  to etch microscopically precise circuits onto silicon, allowing them to be packed more closely together, thus boosting their speed and reduces power demand.

Sensitive Chip Technology

The CCP is known to have made attempts to acquire the valuable technology from the Dutch.

The trade minister did not directly mention China or ASML, Europe’s largest tech firm and one of the largest global suppliers of semiconductor equipment, in her letter to parliament.

“In view of technological developments and geopolitical context, the government has come to the conclusion that it is necessary for (inter)national security to extend the existing export control of specific semiconductor production equipment,” wrote Schreinemacher.

She said the new measures target only “very specific technologies in the semiconductor production cycle on which the Netherlands has a unique and leading position, such as the most advanced Deep Ultra Violet (DUV) immersion lithography and deposition.”

She added that the decision for additional export controls “was made carefully and as precisely as possible [surgically], in order to avoid unnecessary disruption of the value chains and to take into account the international level playing field.”

Schreinemacher said the government would publish the new regulations “before the summer.”

Regarding which specific details fall under the new restrictions and whether ASML can continue to service chip-printing machines the company has already sold in the country is still being fleshed out.

“Those details still need to be worked out,” Schreinemacher told reporters on March 9 in Stockholm.

ASML and its Chinese customers are not exactly sure how the ban will affect their businesses.

Companies that purchase their equipment enter into service agreements with ASML for ongoing maintenance.

The “installed base” segment contributed about 25 percent of ASML’s worldwide revenue last year.

ASML Reacts to Its Government’s Decision

In response to the government’s decision, ASML stated on its website, that the new restrictions will apply to its “most advanced deposition and immersion lithography tools.”

“Due to these upcoming regulations, ASML will need to apply for export licenses for shipment of the most advanced immersion DUV systems,” the company said, adding that it “will take time for these controls to be translated into legislation and take effect.”

“Our expectation of the Dutch government’s licensing policy, and the current market situation, we do not expect these measures to have a material effect on our financial outlook that we have published for 2023 or for our longer-term scenarios,” it added based on the announcement.

China makes up 14 percent of the Dutch firm’s total global sales and has sold more than $8.46 billion worth of chip lithography equipment in China over the past decade.

A prohibition on ASML from exporting its most advanced technology to China has been in place by The Hague since 2019, but the firm is still allowed to supply lower-quality systems.

ASML has Chinese-based research and manufacturing centers in Beijing and Shenzhen, as well as a regional headquarters in Hong Kong.

However, the new rules may indirectly affect certain products that account for 10 percent of ASML’s global sales in a worst-case scenario, ING analyst Marc Hesselink, told Reuters.

Some of the Dutch firm’s customers in China include South Korean chipmakers SK Hynix and Samsung Electronics, which would still likely be granted licenses.

Meanwhile, several Chinese companies like chipmakers SMIC and YMTC, face U.S. export restrictions but may face few restrictions from the Netherlands.

Semiconductor Security Pact

Back in January, Dutch Prime Minister Mark Rutte and President Joe Biden held talks to discuss advanced chip technology made by Dutch company ASML Holdings and other security issues.

Tech industry experts say that the lack of access to ASML’s latest advanced tech manufacturing technology has become a serious handicap in the CCP’s long-term plans to develop its own domestic chip industry.

Chinese manufacturers are currently only able to produce low-end chips used in vehicles and in most consumer electronics, but not those used in smartphones, servers, and other high-end products.

Beijing has criticized the moves by the United States and its allies, saying they are violations of free market principles in international trade.

The Biden administration imposed export controls to limit China’s access to advanced chips in October, which it says can be used for dual-use purposes.

There are strategic concerns that Beijing could use the advanced chips, to make weapons, enhance existing surveillance apparatus, further additional human rights abuses, and improve the speed and accuracy of its military logistics.

The White House has urged allies like Japan, the Netherlands, and other European allies to take its side in its ongoing chip war between Beijing and Washington.

“The Biden administration did their thing on Oct. 7 and we are doing what we are doing based on our own assessments,” Schreinemacher told reporters in Sweden while avoiding a comparison between their countries’ restrictions.

CCP Opposes New Tech Restrictions

Chinese foreign ministry spokeswoman, Mao Ning, accused “an individual country” in a reference to the United States, of trying to “safeguard its own hegemony” by abusing national security as an excuse to “deprive China of its right to development.”

“We firmly oppose the Netherlands’s interference and restriction with administrative means of normal economic and trade exchanges between Chinese and Dutch enterprises,” said the spokeswoman, Mao Ning. “We have made complaints to the Dutch side,” she said.

Mao called for the Dutch to “safeguard the stability of the international industrial and supply chain.”

Schreinemacher said that the Chinese protest over her government’s decision to impose restrictions on computer chip technology exports was “understandable” from their position, but she still expected diplomatic relations to remain good.

Mao warned that the restrictions would “limit normal economic and trade exchanges between Chinese and Dutch companies.”

However, the Dutch trade minister said China will remain a top trading partner for both the Netherlands and Europe.

She said that Europeans are buying solar panels from China, while the Chinese can still buy equipment from the West, including ASML machines, which will not be subject to restrictions.

“So I believe that this mutual dependence works to both our advantages,” she said.

Reuters and the Associated Press contributed to this report.