Guest Post: Will Japan Curbs Hit China Semiconductor Self-reliance Plans?

Joining the US-led effort to restrict chipmaking equipment exports to China, Japan has put in place restrictions that are more draconian than that of the US and where the Japanese state has effectively taken control of the country’s semiconductor capital equipment market.

  • Japan is imposing export restrictions on 23 types of equipment used to make semiconductors. But instead of limiting the restrictions just to China, it has flipped the entire industry on its head.
  • Instead of being able to ship to anyone unless told not to, now the Japanese companies can’t ship to anyone unless they are allowed to.
  • This effectively gives the Japanese trade ministry life and death power over semiconductor equipment, which may prove to be detrimental to the local industry’s health in the long run.
  • Unlike the US Department of Commerce, where the presumption is denial of a license, it seems the Japanese Ministry of Trade will operate under the presumption of granting licenses.
  • Any other mode of operation would be highly detrimental to its own industry.
  • This represents a bigger step than what many analysts were expecting from Japan. It will really hinder China’s ability to manufacture chips at non-leading edge nodes below 20nm.
  • This was the weakness of the new measures announced by the US last October, as at 20nm-10nm, it is possible to build a fab using non-US equipment.
  • However, when you add Japan into the mix, this then becomes virtually impossible and there will be no point in buying machines from ASML, meaning that the combination of the US and Japan represents an effective embargo.
  • This means that China will now have to rely on domestically produced capital equipment which is going to be a real problem.
  • Although Huawei claims to be able to manufacture at 14nm, it did not say whether it could do so at volume with good yields which is what is required for Huawei to be able to use these chips economically in its products.
  • The net result is that Japan’s actions make the US actions far more effective and deal a blow to any workarounds that the Chinese may have found to build fabs without US equipment.
  • This reinforces the view that China is in real trouble when it comes to semiconductors, which will hamper and slow its rise as a technological superpower.
  • That being said, there will be a likely bounce in the Chinese economy in H2 2023, although the lack of action on stimulating the economy remains a cause for concern.
  • If it comes, the rising tide will lift all boats and especially the beleaguered technology sector.

Micron: A display of weakness

  • China’s review of Micron on “national security” grounds is a tit-for-tat retaliation that shows just how weak its hand is in the game of semiconductor brinksmanship.
  • The Cyberspace Administration of China (CAC) has said it would review Micron’s imports into China to ensure that using its products would not compromise the security of its information infrastructure.
  • It seems that this move has nothing to do with national security but is instead an attempt to damage US interests in China without compromising its own technological ambitions.
  • If China was really concerned about “national security”, it would be reviewing many other companies. But a blockade on the import of products from many of these companies would hurt China just as much as the US, if not more.
  • In the case of Micron, China can still buy the same products from South Korea or Japan with no ill effects on its development of technology.
  • This is precisely why Micron has been targeted. It is unlikely that other companies that export chips to China will be targeted as it would do more harm than good.
  • The move is also unlikely to give China much in the way of negotiating leverage and so this will prove to be an isolated incident that is pretty irrelevant to the overall technological and ideological struggle.

(This guest post was written by Richard Windsor, our Research Director at Large.  This first appeared on Radio Free Mobile. All views expressed are Richard’s own.) 

Richard is our research director at large and also founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his recent tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector. He had covered Global Telecom Equipment covering companies such as Nokia, Motorola, Lucent, Qualcomm, Ericsson, Filtronic, Alcatel-Lucent amongst others. Later, Richard began looking at Handset software and became an industry leader in the space. He shifted from direct stock coverage to covering technology on a global scale, taking on responsibility of the complete technology ecosystem. His firm Radio Free Mobile is a partner firm of Counterpoint Research and covers the digital mobile ecosystem, accessing and comparing all of the global ecosystems.

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