US-China semiconductors war, Phase IV

Talks between the US, Japan and the Netherlands for curbing exports of semiconductors manufacturing equipment to China have been acknowledged, and are still proceeding. Although nothing official has yet come out of them, they have been considered a serious threat enough in Beijing for the Ministry of Foreign Affairs to denounce them preemptively end of January.

Containment policy agenda

The talks come as a logical Phase IV in Washington’s technological containment policy toward China, centered on semiconductors at the core of all the most sensitive industrial programs.

Phase I was executed in 2019, with vetoes on sales of US firms-made advanced chips to certain Chinese companies (with Huawei the most visible).

Phase II was engaged in 2020, when controls were extended to chips made using US technologies, whatever the manufacturer’s nationality. This came after Chinese firms demonstrated their quick reaction capacity for designing their own semiconductors – targeting their inability, nevertheless, to have them produced for lack of national advanced « founders » (the firms manufacturing chips on indications of fabless designers).

Phase III was decided in 2022, with controls on US technologies-using production equipment for certain categories of semiconductors. It was motivated by China accelerating its efforts to develop its own semiconductors industrial chain, including foundry.

Phase IV comes today to complement that Phase III. Netherlands’ ASML and a handful of Japanese companies being the only non-US major manufacturers of advanced semiconductors manufacturing equipment, they are the only alternative for China to acquire machines for upgrading its founders, and giving them ability to produce advanced chips.

The (major) question of extent

Whereas agreement seems to have been reached between the US, Japan and the Netherlands on the principle of controls, an important question remaining is wether Tokyo and The Hague will exert vetoes to the same extent as Washington.

Japan and the Netherlands may consider only equipment for making the most advanced chips justify veto, with mid-end equipment implying no threat and leaving room for balancing their relation with China.

The US view is very different, anticipating the building of its own semiconductors manufacturing industry by China, and the decisive role mid-end equipment may play on the learning curve toward that goal.

No doubt Beijing will make all efforts to convince the Japanese and Netherlands governments that only the short term matters.

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