China threatens chip war retaliation against Dutch, Japanese

Chinese state media and officials have threatened to retaliate against the Netherlands and Japan, urging them not to accept Washington’s requests to strengthen their chip export controls targeting China.

The Global Times, a mouthpiece of the Chinese Communist Party, says in a commentary that if the Dutch government follows Washington’s order to stop providing maintenance services to the high-end deep ultraviolet (DUV) lithography machines in China, Beijing will take corresponding counter-measures, such as “imposing trade restrictions or seeking alternative suppliers, and reevaluating its cooperation with the Netherlands in more global areas.”

The comments come after Bloomberg reported on August 29 that Dutch Prime Minister Dick Schoof will likely not renew certain ASML licenses to service and provide spare parts in China when they expire at the end of this year. 

Citing people familiar with the matter, the report said the Dutch government’s decision, which will cover ASML’s top-of-the-line DUV lithography machines, comes after some pressure from the United States. 

It said the Biden administration had mulled the use of the United States’ Foreign Direct Product Rule (FDPR) to ban other countries from exporting products built with US-originated technology to China. 

“We are in talks, good talks and we are also watching out very specifically for the economic interests of ASML, those need to be weighed against other risks and the economic interests are extremely important,” Schoof told Reuters on August 30. 

“ASML is for the Netherlands an extremely important, innovative industry that should not suffer under any circumstances, because that would damage ASML’s global position,” he said.

The Netherlands is not the only supplier country feeling intensified pressure. Another Bloomberg report said Monday that some senior Chinese officials told Japanese companies China will retaliate if Tokyo strengthens its chip export controls.

The report said Toyota Motor’s executives privately told Japanese officials that they are worried that Beijing would cut Japan’s access to critical minerals that are essential for automotive production. It added that the US has so far refrained from invoking the FDPR against its allies as it would prefer to reach a diplomatic solution with them. 

Coverage of the curbs

From January 1 this year, the Dutch government stopped granting licenses for the shipment to China of ASML’s most advanced DUV immersion lithography systems (NXT: 2000i, NXT:2050i and NXT:2100i and subsequent systems). 

But still Chinese chip makers can purchase these machines from third countries while ASML has to provide maintenance services and parts to them. 

In late July, media reports said the Biden administration would expand the coverage of its FDPR, which was first introduced in 1959 to control the trading of US technologies, by the end of August. 

They said Washington might use the FDPR to stop China from obtaining high-end high-bandwidth memory (HBM) chips made in South Korea and chip-making equipment made in the Netherlands and Japan via places such as Israel, Singapore, Malaysia and Taiwan. As of now, the US has not yet announced these curbs.

Since last year Washington has been pushing the Dutch government to restrict the maintenance services that are provided by ASML to Chinese customers. The curb will probably target fewer than five advanced DUV lithography machines in China. 

Chinese state media and commentators said the impact of the curb on China’s chip sector will be huge as the affected machines are crucial for making 7-nanometer chips. 

“If ASML stops providing maintenance services and parts to China, some DUV lithography machines may have to stop working from next year,” Jiefu, a Chongqing-based IT columnist, says in an article published on Monday. “Those using multiple exposures to produce high-end chips will break down first.”

He says it will be a lose-lose situation for both the Chinese semiconductor industry and ASML.

“This is a strategic move by Washington to further antagonize China and curb its development,” the Global Times said in an opinion piece on September 1. “It will exacerbate the widening rift in China-US and China-Netherlands relations, increasing global geopolitical instability.”

The article added that Amsterdam is now weighing the economic interests involved in ASML’s decision to restrict exports to China. It said such efforts to try to find a balance indicate that the US containment policy toward China has reached its limits.  

Dale Jieh Wen-chieh, Taiwan’s former ambassador to New Zealand, says in a TV program in Taiwan that’s carried on YouTube that the US can force ASML to stop fixing high-end DUV lithography in China as it owns the ultraviolet technology that ASML needs – and the Americans can also ask Germany to limit the exports of Zeiss lens to the Netherlands. 

Jieh says it’s unlikely that the Shanghai-based Semiconductor Manufacturing International Corp (SMIC), which reportedly uses multiple exposures to make 7nm chips for Huawei Technologies, can circumvent the US curbs in the coming few years. 

However, a Hunan-based commentator says people should not be over-worried as Chinese chip makers will eventually figure out how to obtain necessary parts and fix the high-end DUV lithography, just as Russia can still purchase US chips through various unofficial channels. 

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