China fears that Japan’s chip production limits go beyond US restrictions

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China’s semiconductor industry fears that Japan’s export limits on critical chip-making equipment will be so wide that they risk affecting its production of inferior silicon, used in everything from cars to washing machines.

Tokyo said it intends to place restrictions on exports of 23 types of critical chip-making equipment since July as it aligns with the US and the Netherlands in implementing sweeping export controls that could limit China’s access to cutting-edge chips.

However, Chinese industry executives who have examined the fine print of the envisaged rules say they could potentially go further than the United States in limiting China’s ability to make semiconductors.

“Japan’s export controls will be more of a concern for China compared to last year’s Washington sanctions,” said a Chinese chip factory executive, who declined to be named.

Last October, Washington placed limits on the export of equipment capable of producing chips at miniaturization levels below 14 billionths of a meter or, in some cases, 16 nanometers.

The nanometer node refers to several generations of chip manufacturing technology. The most advanced chips for smartphones, for example, are those at 3nm, while the most mature chips for appliances, vehicles and Internet of Things gadgets are manufactured at 28nm and beyond.

However, Japan’s specification includes basic chips such as 45nm, in export controls for equipment such as that used in immersion lithography supplied by Nikon, because some of the technology may be essential in the production of advanced chips.

A Chinese government official who works closely with chipmakers said Dutch lithography giant ASML only expected restrictions on machines producing advanced chips, while its smaller rival Nikon faced wider caps in Japan. .

A person close to ASML said the company was still awaiting the final details from the Dutch government, which should happen spell out its restrictions by mid-July.

“What the Japanese government is saying is that they will require licenses for everything – whether or not they grant those licenses is the question. . . the Japanese are ahead of us,” the person said.

Nikon said it does not expect any impact from Japanese export controls for the current 2023-2024 fiscal year. Another equipment supplier, Tokyo Electron, expects its annual revenues to fall 23% from a year earlier to 1.7 trillion yen ($12.3 billion), but executives declined to comment on how much of the decline was the result of the measurements and which of his equipment would be affected.

China’s Semiconductor Industry Association, which represents 900 companies, warned last month that the scope of export equipment that could be restricted by Japan was “too broad” and could affect supply chains for more mature chip technology.

He called on the Chinese government to “take decisive countermeasures if the Japanese government insists on destroying the friendly and cooperative relationship between the Chinese and Japanese semiconductor industries.”

Chips manufactured at 28nm and beyond nodes are expected to occupy 75 to 80 percent of foundry production capacity globally over the next three years, according to research firm TrendForce.

Such mature chip production is also a key part of China’s strategy in response to US restrictions. China’s largest chip maker, SMIC, has ramped up production of inferior chips and is building four new factories after being placed on the US export controls list.

Though it has directed funding and lent political support to local equipment suppliers, China still relies heavily on imported chip-making tools and had hoped to turn to Japan and South Korea to replace US technology as tensions escalate geopolitics.

Instead, there are now fears that Japan’s potentially tougher restrictions on equipment exports could be a sign of things to come from other governments.

“We are concerned whether the governments of the United States and the Netherlands will issue export controls as stringent as those of Japan,” said a government official who works closely with Chinese manufacturing plants.

However, Applied Materials, Lam Research and KLA, three of the largest US makers of chipmaker tooling, said clarifications from the commercial department mean they should be able to ship tooling to help create old-generation chips.

Government officials in Tokyo have warned it would be difficult to judge which restrictions were the strictest based on specifications alone, since companies could still get a license to export the equipment even if they needed to go through the screening process. And while Washington’s measures specifically target China, Japanese export controls have a much broader geographic coverage.

“The systems are different, so it’s not an apples to apples comparison,” said a Japanese official.

Additional reporting by Andy Bounds in Brussels