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author: han lijie, partner of kaiteng law firm, usa

editor: tencent technology su yang

it is well known that the united states is "strangling" mainland china's semiconductors, and japan and the netherlands are following closely behind.

in summary,focus on export controls on advanced chips and corresponding manufacturing equipment.at the beginning, the various parties had different definitions of advanced chips. with the continuous pressure from the united states, the standards of various parties are basically consistent.a detailed explanation is also given in the article.

for example,regarding advanced manufacturing equipment, the standard is duv equipment with a wavelength of 193nm, a resolution of less than 45nm, and an overlay accuracy of ≤2.3.. corresponding to specific equipment models, such as asml nxt:1980i and nikon's nsr-s636e duv lithography machine.

in the past, the export controls imposed by the united states and its allies, such as japan and the netherlands, on mainland china were similar to the relationship between sets and subsets. the export controls of the united states are a large set, and the export controls of its allies are subsets of it, but there are occasional easing of restrictions in implementation.

the us is famous for its long-arm jurisdiction. one of the strictest rules is the "foreign product direct rule" clause with a 0% ratio of items, which means:as long as the relevant equipment involves american technology, more than 0% will be subject to us export controls.

now, countries are not only aligning with the us export control standards, but also increasing them to varying degrees. for example, the netherlands has expanded the licensing standards for lithography machines from 1980i to earlier models such as 1970i, which took effect on september 7. japan has further added 5 semiconductor-related products to its 23 semiconductor equipment export controls last year, which will take effect on september 8.

we have briefly laid out the relationships and logic behind export controls between the united states and its allies. next, let’s take a look at the five latest export controls added by japan.

i found the translation of the original text for you, which is roughly as follows:

the five clauses can be roughly divided into three categories:quantum computing、advanced semiconductors、specialty semiconductors。

among them, low-temperature complementary metal oxide semiconductor integrated circuits (cmos) and quantum computers both belong to the category of quantum computing. especially low-temperature cmos, its value lies in reducing the power consumption of quantum bit interface chips, which can help quantum computers to be further integrated and miniaturized.

the technology required to design and manufacture gaafet structure integrated circuits belongs to the category of cutting-edge semiconductors. in layman's terms, it refers to 3nm and 2nm related design software and manufacturing equipment. for example, samsung will adopt the gaafet structure at the 3nm node, while tsmc will not apply it until the 2nm node.if you have special magic, you can directly use the gaafet structure at 5nm and 7nm.

scanning electron microscopes and programs that generate multi-layer gdsⅱ data can be classified as specific semiconductors. scanning electron microscopes are mainly used for chip testing, but in special cases, they can also be used for reverse engineering to assist in the production of 5nm and 7nm process chips, while gdsⅱ layout design software can also assist in the production of 7nm and 5nm process chips in special cases.

gds format layout, the file used for final tape-out, source: internet

in summary,in the past, joint export controls by multiple countries were directed at technologies with advanced chip manufacturing capabilities, but are now gradually extending to traditional equipment and technologies that assist in advanced chip manufacturing.。

according to japan's export control rules, after being included in the export control scope, these technologies must obtain prior permission when exported to all countries and regions. however, japan usually grants licenses to other countries such as the united states. the above-mentioned amendments are considered to be aimed at mainland china.

so, you can understand this behavior as a further escalation of export controls on the mainland.

i think a lot of people are curious.can japan and the netherlands say no to the us export controls? obviously not.

japanese semiconductors were built from scratch with the support of the united states after world war ii. japan has a government-driven industrial policy, actively exports abroad and takes incentives domestically. it rose rapidly in the 1970s, becoming on par with the united states, and made the american industry unable to resist in the early 1980s.

in 1985, nec became the world's largest semiconductor company. at that time, toshiba and hitachi ranked among the top three semiconductor companies in the world.

in 1988, japan occupied the top three of the top five semiconductor companies in terms of sales. source: gartner

japan poses a huge threat to american companies in many fields such as semiconductors, steel, home appliances, and automobiles, so the united states decided to contain japan.

in order to cooperate with the united states in reducing trade deficits and protecting domestic industries, japan had to agree to the appreciation of the yen in 1985. the following year, it signed the japan-us semiconductor agreement. japan took the initiative to cut exports. subsequently, japan was defeated and the semiconductor market was gradually eroded by korean companies supported by the united states. the main battlefield was dram memory chips.

by 1992, south korea's samsung had seized the position of the world's largest memory chip manufacturer, and the position of japanese companies gradually collapsed, and the global position of japan's semiconductor industry was marginalized. in addition, since the 21st century, the mergers and acquisitions of large japanese companies have been partially swallowed up by well-funded american capital. in 1988, japanese semiconductor companies had a global market share of about 50%, but now it is less than 10%.

in the last decade of the last century, as global semiconductor companies focused on the next generationin the field of lithography machine manufacturing, japan's nikon and canon are in the leading position. as the united states' domestic lithography machine companies are declining, it fully supports asml in the netherlands., providing it with technology and market, and eventually becoming a monopoly lithography machine company. japanese companies completely lost their global leading position.

nikon lithography machine high-precision alignment system, source: nikon

it is precisely because of this history that since 2022, the united states has put pressure on the netherlands to restrict the export of lithography machines to china. although asml was in a dilemma, it had to obey.

due to various historical reasons, japanese companies are generally absent from the most profitable field of chip design, but their advantages lie in equipment and materials such as photoresist, which require long-term accumulation and slow short-term results. in this regard, japanese companies and products have long been deeply integrated into the global semiconductor industry chain, and have inextricable economic and technological cooperation with european, american and asian companies.

judging from the proportion of japanese companies in the global industrial chain,japan and the united states are the world's largest suppliers of semiconductor equipment, which well explains the saying "a lean camel is bigger than a horse."

according to data from the japan semiconductor association cited by semiconductor market agency trend force, japan's cumulative semiconductor equipment sales in january-april 2024 reached 1387.079 billion yen, up 9.4% from the same period last year, setting a record high for the period. japan's market share of global semiconductor equipment (in terms of sales) is 30%, second only to the united states, ranking second in the world.

under the control of the united states, japan has lost its position in the fields of semiconductor design and advanced manufacturing.if japan does not follow the us strategy, it will still be able to maintain its thriving and surviving equipment and materials industries and will be unable to withstand us retaliation.

the united states has supported japan's semiconductor industry and has also "beaten" japan's semiconductor industry, but this does not affect japan's main line of following the united states' export controls.

in the 1950s, japan joined the paris coordinating committee to control products and technologies against the soviet union and other countries. in 1987, toshiba exported advanced machine tools to the soviet union, which led to the advancement of the soviet military industry and aroused strong dissatisfaction from the united states. since then, the japanese government has cooperated with the united states in the field of export control, and most japanese multinational companies have also established export compliance systems in line with the united states.

since 2019, the united states has used export controls as the main tool to curb the development of science and technology in mainland china, which has brought huge business opportunities to japanese and european companies. coupled with the booming development of the mainland semiconductor industry in 2020 and 2021, japan's exports to china reached a peak in 2021. according to customs data, japan exported nearly us$12 billion in semiconductor equipment to the mainland in 2021.

results of major japanese semiconductor equipment and materials companies in fiscal year 2020, source: nikkei chinese website

this naturally caused strong dissatisfaction among the american political and business circles. since 2022, the united states has actively promoted a multinational coordination mechanism for export controls.the united states hopes that japan, the netherlands, south korea and other countries will cooperate with the united states in a joint blockade of items and technologies that the united states intends to control, on the one hand to ensure the effectiveness of controls on mainland china, and on the other hand to prevent japan, the netherlands and other countries from swallowing up markets that american companies have given up due to export controls.

especially since october 2022, the united states has imposed comprehensive restrictions on advanced manufacturing of integrated circuits in mainland china. mainland chip foundries need a license to obtain advanced process equipment produced in the united states, and most license applications are not approved. the united states is also putting pressure on japan in terms of semiconductor equipment.

facing pressure from the united states, in march 2023, the japanese government announced draft rules to impose export controls on 23 types of high-performance semiconductor manufacturing equipment, which officially took effect in july of that year. the controlled products include 3 cleaning equipment, 11 thin film deposition equipment, 1 thermal treatment equipment, 4 photolithography equipment, 3 etching equipment, and 1 testing equipment. the content of the control is highly consistent with that of the united states.

japan's rules are not ostensibly targeted at specific entities and apply to all countries and regions, but its main customers are mostly in mainland china and require individual licenses. the purpose is to cooperate with us export controls.

the 2024 revision took effect on september 8, and some of the specific controlled products are exactly the same as the export controlled items of the united states.some items, such as microscopes, are japan's advantageous and distinctive products, which also reflects the result of coordination between the united states and japan. japan not only needs to keep in sync with the us product restrictions, but also is required to restrict some items that japan does not have, forming a closed loop.

i have had private discussions with friends at equipment vendors.aligning controls with those of the united states is also one of the key measures to regain the initiative and voice in export controls.。

this apparent export control seems to be tightening, but it is actually a positive signal. in the past, if japan and the netherlands did not have controls on related equipment, but the united states had clear standards, then the relevant exports had to apply for permission from the united states. if the united states did not allow it, it would be disadvantageous for domestic companies to export.there is a convention between the united states and its allies that if the country of origin imposes controls, the united states, as an ally, will not intervene.

in other words, if companies such as japan and the netherlands impose export license restrictions on semiconductor equipment, then the authority to grant or not grant permission is in their hands.

since 2019, the united states has gradually implemented export controls on mainland china's semiconductor industry, and japanese and european companies have benefited significantly from this.

according to nikkei asia, statistics from the japanese ministry of finance show that from january to march 2024, half of japan's semiconductor manufacturing equipment exports were sold to the mainland. from january to march 2024, the export value of semiconductor manufacturing equipment, components and flat panel display manufacturing equipment to the mainland increased by 82% year-on-year to approximately us$3.32 billion, setting a record high since 2007. among them, the proportion of japanese semiconductor manufacturing equipment exports to mainland china has exceeded 50% for three consecutive quarters.

according to the data, japan is the second largest supplier of semiconductor products to mainland china, and the mainland is the largest export destination for japan's semiconductor manufacturing equipment.

historically, after japanese semiconductors lost in competition with the united states, some companies came to the mainland to invest. huahong nec was an attempt in the 1990s.

taking consumer electronics as an example, japan's automotive chips, power semiconductors, and sensors are still among the top in the world, and mainland china is one of its major markets. japan has a deep accumulation of semiconductor materials and equipment, which are widely used by semiconductor manufacturers and are an indispensable upstream supply for the mainland's semiconductor manufacturing industry. this is even more obvious in the field of semiconductor materials, where japanese companies occupy more than 50% of the semiconductor material market share, and some materials have a controlling position in the market.

in other words, japan can influence the global industrial chain in terms of individual materials. in july 2019, japan restricted the export of three types of semiconductor materials to south korea, including fluorinated polyimide, high-purity hydrogen fluoride and photoresist.

the types of semiconductor equipment that japanese companies excel in have a small market, while american and european companies dominate larger markets such as lithography machines and etching equipment, so japanese companies are highly dependent on the mainland market.

it can be said that the industries of japan and mainland china are highly complementary. against the backdrop of the sino-us semiconductor competition, to a certain extent, japanese and eu companies are highly competitive in vying for the mainland market. the mainland market is huge and has sufficient funds, and japan is more complementary to the local market, leaving huge room for cooperation.

it is not in the interests of japan's semiconductor industry to "strangle" customer financiers.

the dilemma faced by japanese companies is that on the one hand, they are in fierce competition with their american counterparts, and on the other hand, they rely on the mainland's import market. as the united states asks japan to join its global containment strategy, they are caught in a dilemma.

facing mainland china, japan's largest export market, japan's export controls are expected to be more likely to be tightened first and loosened later in operation, issuing licenses in a timely manner in line with the pace of us controls to maintain exports to the mainland.

from the perspective of the entire industry, the united states has been regulating china's advanced processes for nearly two years since october 2022. at that time, 14nm chips were still a relatively advanced technology. now 7nm is very common, and there are already many 5nm chips designed by mainland companies, including a series of smart driving chips from weilai, ideal, and xiaopeng, all of which are manufactured by tsmc.whether the united states will continue to strictly control the 14nm red line may be a big variable in the future, which also gives japanese and dutch equipment companies a chance.

you may also be concerned about how to counter it?

since we have relatively few products that are bottlenecks in japan's semiconductor industry, the possibility of direct retaliation is low. visible means include:refusal to issue licenses to japanese companies to purchase rare earths from mainland chinabut from the perspective of reducing damage to the mainland semiconductor industry, weit is more likely to impose tariff countermeasures on specific areas, such as agricultural products and aquatic products.。