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Netherlands joins US blockade of Chinese chip industry

No DUV for you

The Dutch government has formally joined US efforts to deny China access to equipment and software essential to expanding the Middle Kingdom's semiconductor manufacturing capabilities.

The measures, revealed in a letter to the Dutch parliament from Trade minister Liesje Schreinemacher this week, doesn't name China or ASML, but does explicitly restrict the sale of deep ultraviolet lithography machines. These complex multi-million-dollar assemblies used to etch microscopic features into silicon.

"Semiconductors are of great strategic importance for future military and civilian applications. The Netherlands plays an important role in this value chain world," the letter, translated to English reads. "Given the technological developments and the geopolitical context, the government has come to the conclusion that it is necessary for national and international security to expand the existing export control of specific semiconductor production equipment."

The document outlines three goals which include preventing Dutch goods from contributing to undesired military applications by foreign powers; preventing unwanted strategic dependencies; and maintaining Dutch technological leadership.

ASML, meanwhile, confirmed in a statement that the new export controls will mean "ASML will need to apply for export licenses for shipment of the most advanced immersion DUV systems." It added: "In this regard, it is important to consider that the additional export controls do not pertain to all immersion lithography tools but only to what is called 'most advanced'."

The decision represents a major victory for the US, which has been pressuring the Netherlands and other allies in the Asia Pacific to mirror the Biden administration's aggressive export bans which have systematically targeted Chinese chipmakers like YMTC and SMIC.

For China, the potential loss of ASML as a supplier could seriously impede their ability to produce semiconductors domestically. DUV machines, while no longer the most advanced chipmaking equipment, are still used heavily to produce chips down to around 14nm.

Sales of ASML's EUV tools have already been restricted since 2019.

The US enacted similar export controls back in October, which barred three US firms — Lam Research, Applied Materials, and KLA Corp — from selling their most advanced chipmaking equipment in China.

The actual mechanism by which the Dutch intend to enforce these controls appears to mirror that of the American's "Unverified" and "Entities" lists. These feature the names of countries and organizations for which special licenses are required before vendors can sell to them.

According to the letter, the Dutch government will analyze the risk associated with the sale of specific goods and restrict exports if it determines they jeopardizes the country's national security. This means that Chinese firms may still be able to obtain some DUV equipment from ASML depending on how restrictive the Dutch Government is when it comes to granting licenses.

A lithography wildcard

The Dutch government's decision to join the US' silicon blockade of China leaves Japan as a source of DUV equipment, however.

According to the International Trade Administration, Japan's semiconductor industry mostly revolves around the production of equipment and materials used to make chips. Major players include Nikon and Canon, which while best known for producing photographic equipment, also produce DUV lithography machines.

According to Reuters, the Japanese government is expected to announce new rules restricting the sale of semiconductor manufacturing equipment to China as early as this week.

However, as previously reported, Japanese lawmakers have signaled that the country's trade restrictions may not be as strict as those in the US or Netherlands.

"The United States is being strict, but there is a question of whether we have to exactly match that. What we do share is a recognition of the concern over the equipment," Akira Amari, Japan's former Liberal Democratic Party minister said last month. If this proves to be the case, this could leave a rather substantial gap in the Biden Administration's blockade.

China already reeling

The latest round of trade restrictions placed on China by the US and its allies appears to have caught the attention of Chinese leaders. This week the Chinese parliament announced sweeping reforms intended to alleviate its reliance on foreign tech.

In the wake of the Dutch decision, Chinese foreign ministry spokesperson Mao Ning was quoted as saying "we hope the Dutch side will adhere to an objective and fair position… act to safeguard its own interests, and not follow the abuse of export control measures by certain countries." In this case, "certain countries" almost certainly refers to the US.

Meanwhile, SMIC — China's TSMC — revealed this week it's having trouble sourcing equipment for new fabs. During its earnings call this week, the company said that mass production at its fab site in Jingcheng had been postponed by "one to two quarters" as a result of a "delay of bottleneck equipment."

It's unclear whether the equipment in question refers to DUV lithography machines or other equipment. However, the timing of the Dutch government's decision implies SMIC is anticipating problems obtaining the licenses necessary to redy the facility for mass production.

And it's not just chip making equipment that China is having a harder time getting their hands on. As we reported this week, Chinese imports of semiconductors and integrated circuits fell 26.5 percent, with US sanctions believed to be the cause. ®

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