China's Semiconductor Industry: Setbacks and Export Restrictions

China's semiconductor industry faces severe setbacks due to halted imports of crucial EUV equipment from ASML.

### Setbacks in China's Semiconductor Ambitions: The Impact of Export Restrictions
* 🚫 China's semiconductor industry is experiencing a major setback as ASML halts the import of **critical extreme ultraviolet (EUV) lithography equipment**, essential for **advanced chip production**.
* 🔧 The decision also includes stopping the export and maintenance of older semiconductor fabrication equipment, like **deep ultraviolet (DUV) machines**, which could **severely impair China's production capabilities**.
* 📉 According to a Reuters report, the Dutch Prime Minister is unlikely to renew ASML's license for services and spare parts in China, which is **critical for producing advanced chips**, particularly **smartphone application processors**.
* 🛠 Currently, China is relying on older DUV technology to produce chips, but this method leads to **low yields and profitability issues**, making it difficult for companies like Suji Tasa to **sustain operations**.
* 🇺🇸 The U.S. has been pressuring allied countries to align with its export control standards regarding China, with potential additional measures like the **overseas direct product rule (FDPR)** on the horizon.
* 💰 In anticipation of increasing restrictions, China imported **$26 billion in semiconductor equipment** this year, with ASML's imports exceeding **$2 billion**, indicating a **rush to secure resources before sanctions tighten**.
* ⚔ The U.S. aims to prevent China from using ASML equipment for military purposes, as it could contribute to the **development of advanced semiconductors for high-value weapon systems**.
* ⏳ Experts suggest that while China may strive for self-sufficiency, it remains **significantly behind in technology**, with a **three-year gap** compared to leading firms like TSMC, complicating its ambitions in the semiconductor sector.

China's semiconductor industry has faced a significant setback. ASML, a Dutch semiconductor equipment manufacturer, has decided to halt the import of essential extreme ultraviolet (EUV) lithography equipment, which is crucial for advanced semiconductor production. This decision extends to stopping the export and maintenance of older semiconductor fabrication equipment, including deep ultraviolet (DUV) machines. As a result, it appears that China will suffer serious damage to its semiconductor production capabilities. The New York Times has examined the collapse of this semiconductor ambition. 

According to a report by Reuters on the 1st, citing anonymous sources, the Dutch Prime Minister is likely to not renew the license for specific services and spare parts provided to ASML in China, which is set to expire this year. China is currently in need of extreme ultraviolet lithography equipment, which is essential for producing advanced chips such as smartphone application processors.

Due to the situation where imports are not possible, ASML's older photolithography equipment, specifically DUV, is being used multiple times to produce chips. However, there is no one to manufacture them, so we are employing a stopgap strategy. Of course, even with this method, it is possible to create high-quality smartphones, but the yield is low, making it unprofitable for companies like Suji Tasa. Despite this, advanced chips have been forcibly produced, but the situation may soon become impossible. From China's perspective, this increases the likelihood of becoming like a dog chasing a chicken. These measures are a response to China's efforts to forcibly increase semiconductor production, with the U.S. continually putting the brakes on. Ultimately, it seems that the Dutch government has also decided to follow the U.S. stance. A senior official from the Biden administration indicated that if allied countries do not align with the U.S. export control standards regarding China, they may implement additional measures, such as applying the overseas direct product rule, known as FDPR.

There has been continuous pressure regarding this issue. Here, FDPR refers to regulations that require any product made in another country to obtain permission from the U.S. government for export if it uses even a small amount of U.S.-made software or technology. In the semiconductor manufacturing equipment sector, important countries besides the U.S. include South Korea, the Netherlands, and Japan. The U.S. government has been promoting the use of FDPR to encourage allied countries to participate. American semiconductor equipment companies, such as Applied Materials, have joined the ban on exports and the prohibition of services, thereby withdrawing from the Chinese market. However, allied companies like ASML and Tokyo Electron have shown reluctance and have only partially participated. Under ongoing pressure, ASML has agreed to comply with export restrictions on certain equipment. Since then, they have primarily exported older kit-type products that can evade regulations to China. However, the equipment...

The maintenance also decided to cut ties with China. Currently, ASML personnel are stationed at the factories of Chinese customers to assist with maintenance. In this regard, former Prime Minister Mark Rutte of the Netherlands stated that the Dutch government needed more time to assess the impact of the U.S. export ban on advanced semiconductor manufacturing equipment. However, it seems that Prime Minister Dick Schoof has shifted the course since taking office. In a recent interview with Bloomberg, Prime Minister Schoof emphasized the need to be very cautious in discussions with China regarding national security. When asked whether the Dutch government is considering new export controls this year, he mentioned that they are having good negotiations with the U.S. and Japan and expects positive outcomes. Bloomberg noted that these measures could be a significant blow to China's ambitions to develop a world-class semiconductor industry.

There is an explanation that as time goes on, semiconductor equipment exports to China will face increasing restrictions. Therefore, a significant amount of semiconductor equipment was purchased this year. According to Chinese customs, as of July this year, China's semiconductor equipment imports reached 26 billion dollars, the highest figure ever recorded. Among this, the total import amount from ASML exceeded 2 billion dollars, marking the second highest amount in history. In short, it can be seen that purchases were made with the concept of let's buy it now, anticipating additional sanctions. The problem is that no matter how many products are imported, if maintenance from ASML cannot be received, even the new equipment may not operate properly. Currently, in China, Huawei designs advanced APs for smartphones, and the country's leading foundry, SMIC, uses old DUV technology for production. Unable to use advanced EUV equipment, SMIC is producing using the older DUV equipment, which involves multiple passes. Of course, producing this way will force production to be...

It is possible to do it, but as the yield decreases, many profitability issues arise. This is why Huawei cannot mass-produce smartphones equipped with advanced APs freely. So, why did the United States force ASML not to export or maintain its equipment to China? The reason is simple: China is not only producing chips for smartphones with ASML equipment but is also using it to create chips for military purposes. In this regard, Jeffrey van Leeuwen, the Dutch Minister for International Trade and Development Cooperation, stated through Reuters in February that China is focusing on acquiring foreign expertise in the lithography field, including from the Netherlands, to promote self-sufficiency in military technology development. He further noted that ASML equipment could be used in the production of advanced semiconductors for high-value weapon systems and weapons of mass destruction.

How advanced is the semiconductor industry currently? Recently, Hiroharu Shimizu, president of the Japanese semiconductor research firm Terry, stated that China's semiconductor technology is three years behind the world's largest foundry, Taiwan's TSMC. This analysis was reported by various media outlets. Citing this report, domestic media have headlined whether the U.S. sanctions have had an effect or not, while also noting that Chinese semiconductor companies achieved remarkable results in the first half of the year. In the article from Nikkei, Shimizu compared TSMC's 2021 mass-produced Nano chip, the Kirin 9000 AP, with China's largest foundry company SMIC's 2024 mass-produced Nano chip, the Kirin 9010 AP, and reached this conclusion. He noted that these semiconductor chips have fundamentally similar processing performance. The Kirin 9010 AP was designed by China's HiSilicon and was released in April with Huawei's latest smartphone, the Pura 70.

Currently, while TSMC is in charge of the production, HiSilicon has made advancements. President Smith analyzed Huawei's latest smartphone and emphasized that, so far, the U.S. government's export controls on China have only slightly delayed China's technological innovation, and the Chinese semiconductor industry is pushing for self-sufficiency in production. However, the report on President Smith's statements misses a very important fact: how is China's SMIC producing its seven-nanometer chips? Even if ASML completely blocks maintenance for DUV equipment, can SMIC mass-produce seven-nanometer chips? The answer is no. Of course, China will try to find ways to overcome this limitation, but it won't be easy. Especially in semiconductors, being three years behind in technology is a significant setback.

I can say that there is a significant difference. At first glance, it may sound like in three years, China will catch up with the semiconductor technology of Korea or Western countries, but that is not the case at all. In three years, Korea's Samsung and SK Hynix will be soaring to even greater heights. On May 8th, the South China Morning Post reported that after the U.S. canceled export licenses for Intel and Qualcomm, China's growing industry, particularly the Huawei laptop business, is wobbling. It is important to pay attention to this report. The South China Morning Post noted that most of Huawei's consumer laptops released since 2022 have been equipped with Intel or Qualcomm processors. They pointed out that the U.S.'s additional restrictions on Intel and Qualcomm chips would pose tremendous challenges to Huawei's growing PC business in China.

South China Morning Post reported that Huawei is trying to diversify its revenue sources by mass-producing desktop and laptop computers that use less advanced chips compared to smartphones. Huawei is purchasing these processes from American chip manufacturers that have received approval from the U.S. government and is using chips that were stockpiled before the sanctions took effect. According to Reuters, as of last March, the chips currently being used by Huawei are a significant quantity worth millions of dollars that were purchased during the Trump administration and are still in stock. South China Morning Post also mentioned that while Huawei discussed using Chinese-made semiconductors in last year's Mate 60 series, the Kirin 9000S processor included in this smartphone was actually produced through ASML's DUV technology. This highlights the reality of the Chinese semiconductor industry. In short, some South Korean media outlets are dramatically portraying the situation of Chinese semiconductors.

It is said that we should not be swayed by such words while promoting. This was an analysis of the current international situation by White. Thank you.

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Why Times

Setback for China's Semiconductor Industry

China's semiconductor industry is facing a major blow as ASML halts the import of crucial EUV lithography equipment and stops exporting older fabrication machines.

The Dutch Prime Minister is likely to not renew ASML's license for specific services in China, exacerbating the country's struggle for advanced chip production.

government has been applying pressure on allied countries to align with its export control standards, leading to a withdrawal of American semiconductor equipment companies from the Chinese market.

ASML's Shift in Strategy and China's Semiconductor Ambitions

ASML is cutting ties with China and has personnel stationed at Chinese factories for maintenance.

The Dutch government, under Prime Minister Dick Schoof, is taking a cautious approach to discussions with China and is negotiating new export controls in collaboration with the U.

China's semiconductor equipment imports have surged to a record $26 billion this year, with ASML accounting for over $2 billion, as companies anticipate stricter sanctions.

China's Struggle for Semiconductor Self-Sufficiency

China's chip production, using ASML equipment, is linked to both smartphone and military purposes, leading to U.

sanctions on the company's export to China.

The Dutch Minister for International Trade highlighted China's focus on acquiring foreign expertise in lithography to boost its military technology development.

Despite being three years behind Taiwan's TSMC, China's semiconductor companies have shown remarkable progress, with the Kirin 9010 AP, designed by HiSilicon, set to launch with Huawei's latest smartphone.

HiSilicon has made advancements while TSMC is in charge of production, but the U.

government's export controls have only slightly delayed China's technological innovation.

SMIC's attempt to produce seven-nanometer chips is hindered by a lack of resources, and catching up with Korea's semiconductor technology in three years is unlikely.

cancellation of export licenses for Intel and Qualcomm is posing significant challenges to Huawei's growing laptop business in China.

Huawei is diversifying its revenue by mass-producing desktop and laptop computers with less advanced chips.

The company is purchasing these chips from approved American manufacturers and using stockpiled chips from before the sanctions.

While Huawei aimed to use Chinese-made semiconductors for its Mate 60 series, the Kirin 9000S processor was actually produced through ASML's DUV technology, highlighting the challenges in the Chinese semiconductor industry.