Japan and the Netherlands stated that the new restrictions are for national security. Following the news of the export restrictions, the CCP’s mouthpiece Global Times reported that China is now building chip manufacturing plants at a rate of 100 production lines per year, but that under the U.S. sanctions, the construction of these plants could be delayed or shelved. The report suggests that Chinese manufacturers must expect the worst at this stage.
Data from the Semiconductor Industry Association (SIA) shows that in 2019, in the total output value of global semiconductor equipment manufacturing, the United States accounted for 41 percent of the share; Japan accounted for 32 percent; Europe (mainly the Netherlands ASML) accounted for 18 percent. The three countries together account for 90 percent of the market, and the joint export restrictions will have far-reaching implications.
“The most critical blow is in the field of photolithography after the three countries join hands,” said Li. Since extreme ultraviolet (EUV) lithography and deep ultraviolet (DUV) lithography will not be exported to China, this means it will be difficult for Chinese chip companies to increase production capacity for a significant period of time. China’s existing lithography is likely at risk of failure since many important components are dependent on imports, which makes regular maintenance impossible, he said.
The U.S. semiconductor export control order issued in October last year mainly targets advanced technologies and equipment below 14 nanometers. However, after joining forces with Japan and the Netherlands, the sanctions are likely to be extended to mature process areas, including low- and mid-range photolithography.
Chip manufacturing cannot be separated from lithography, and the global lithography market is currently monopolized by three companies: the Netherlands’ ASML and Japan’s Nikon and Canon. Data shows that in 2020, according to the number of lithography machines shipped, ASML accounted for 63 percent of the market share, Canon accounted for 30 percent, and Nikon accounted for 7 percent. Half of ASML’s 17 major suppliers are U.S. manufacturers.
U.S. manufacturers rank first in the semiconductor equipment market, particularly in the five key semiconductor equipment areas of deposition, etching, cleaning, process control, and testers, which together accounted for more than half of the global market. In addition, South Korea also accounts for 4 percent of the global semiconductor equipment output, but the country has not yet decided to join the U.S. sanctions. However, in the long run, South Korea is still likely to join the export restrictions in order to maintain access to U.S. technology and equipment.
Chinese Manufacturers Scramble To Buy Equipment
The U.S. semiconductor restriction announced last October targeted advanced technologies and equipment, so most Chinese semiconductor manufacturers, except for SMIC and Yangtze Memory Technologies, were temporarily excluded from the export restrictions since they were not involved in highly advanced technologies and equipment. However, as the Japanese and Dutch counterparts join the United States, Chinese semiconductor manufacturers may face more stringent equipment restrictions. This has triggered Chinese chip manufacturers to speed up the procurement of manufacturing equipment.According to a DigiTimes report on Feb. 3, some Chinese semiconductor manufacturers are snapping up used manufacturing equipment, and others were opting for banned equipment to backdoor the U.S. sanctions.
SMIC announced last November that it would increase spending by $1.6 billion and raise upfront payments on equipment orders to ensure delivery of equipment for the company’s major projects, including three major new manufacturing plants in China. However, if the sanctions are extended to mature process equipment, SMIC’s construction and future development of all three plants would be severely impacted.
China May Spend Decades Catching up
Following the news of the sanctions against China on semiconductors, the CCP mouthpiece Global Times admitted in an article in late January that China’s semiconductor industry faces technical and international political challenges.The Global Times article pointed out that the current self-dependence rate of China’s semiconductor equipment is less than 20 percent, and the lack of technology has become the biggest stumbling block in the development of China’s semiconductor industry.
China’s semiconductor industry is facing two major technological and political challenges. In terms of technology, Chinese semiconductor products are mainly concentrated in low-end areas. Due to the large gap with the advanced technologies, China has to import a large number of mid to high-end semiconductor products every year, especially CPU, GPU, memory, etc., which almost completely rely on imports.
On the political front, the CCP faces strong pressure from the United States and its allies. The U.S. government is trying to relocate American chip manufacturers to the United States, Taiwan, Japan, and South Korea and is working with its allies to contain China’s semiconductor development.
Li told The Epoch Times that under these sanctions, it is impossible for the CCP to catch up on a technological level, even at all costs and for decades, since the CCP does not respect intellectual property and seeks industrial advancement using clandestine methods.
China’s three-year extreme “Zero-COVID” policy came at a huge cost to the public, and in the end, the extreme lockdowns had to end. Without western technology and talent, the gap between China’s semiconductor industry and the world will only widen. The CCP is essentially helpless in the face of sanctions, and the regime is now using more military threats to counter the West, he said.
