Dutch, Japanese curbs on chip equipment to China may not be tough enough -industry group

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By Karen Freifeld

(Reuters) – A chip industry group is warning that unless US allies introduce US-like controls-like restrictions on semiconductor manufacturing plants in China, they will not be effective.

The warning came after news of an agreement between the Netherlands and Japan to curb chipmaking exports to China to align with rules imposed by the Biden administration in October. Details of the deal were not released.

SEMI, which represents the semiconductor and electronics manufacturing supply chain, said it had a common interest in strengthening US national security and welcomed the deal with Japan and the Netherlands.

However, in a lengthy January 31 commentary on the October regulations, the group expressed concern that Allied curbs would not be nearly as restrictive as US controls.

Even if Japan, the Netherlands and other allies impose restrictions on certain tools, SEMI says they will be “largely ineffective” unless international partners agree to more extensive scrutiny of Chinese manufacturing plants, or fabs, that make advanced chips. SEMI also said the allies must prevent its engineers and others from supporting China’s high-end fabs.

If Allied controls aren’t as strong, the United States should license more equipment to Chinese customers not tied to the military, SEMI said after considering overseas availability.

US regulations restrict shipments of certain chipmaking tools to China. They also effectively prevent China’s advanced chip fabs from receiving American technology and deter Americans from supporting the fabs. The US created the rules to slow Beijing’s technological and military advances.

Without the additional restrictions, advanced semiconductor production in China “will still be able to take place with existing equipment, Chinese-made equipment and other uncontrolled items, with the benefit of expertise and services that non-US citizens can offer,” SEMI wrote .

It noted that US equipment companies’ share of the Chinese market has eroded over the past two years as Chinese companies awaited the new curbs. The erosion has accelerated since October, it said, with some companies reportedly seeing a 20% drop in market share in recent months.

“These lost sales are destined for companies from countries not bound by the new rules,” SEMI said, adding that unilateral controls would divert billions of dollars in sales that would have gone to US companies to competitors.

The US Commerce Department, which issued the October rules and has been working with allies, had no immediate comment.

SEMI has over 2,500 members worldwide, including leading US equipment manufacturers Lam Research and Applied Materials.

(Reporting by Karen Freifeld; Editing by Alexandra Alper and Josie Kao)