The Netherlands government just dealt a fresh blow to China's semiconductor industry with further restrictions on shipments of ASML's chip-making equipment to the country, but it may not be the last word as the US is reportedly seeking to further tighten the choke hold on China's chip ambitions.

ASML said in a statement on Friday that effective September 1, it will be required to apply for a license from The Hague to ship its most advanced immersion deep ultraviolet (DUV) lithography systems, including the TWINSCAN NXT: 2000i, and more sophisticated models.

In response, the Chinese government condemned the US for "coercing" other countries into imposing technological blockades on China and "undermining market rules and international trade" as well as the stability of the global supply chain.

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"China will pay close attention to relevant developments and resolutely safeguard its legitimate rights and interests," Mao Ning, spokeswoman for the Chinese Foreign Ministry, said at a press conference on Friday.

The impact of the updated export controls could initially be limited, as the NXT: 2000i and higher-end tools are used for the more advanced 7-nanometre and 5-nm process nodes, which are already difficult for Chinese chip makers to tackle given broader US export controls.

ASML's lower-end NXT1980i, which can be used for 10-nm node chips, is still allowed for sale to China.

Extreme ultraviolet (EUV) lithography machines from ASML, used by top chip makers like Taiwan Semiconductor Manufacturing Co, Samsung Electronics and Intel to produce leading-edge chips for smartphones and artificial intelligence applications, were already banned for export to China.

The latest ban did not come as a complete surprise, as the company as early as March had warned that it may be subject to broader export restrictions on advanced chip-making equipment, but it showed that Beijing's diplomatic efforts with The Hague had fallen on deaf ears.

Liesje Schreinemacher, the Dutch foreign trade minister, said in a letter to the country's parliament in March that the government had decided that existing export controls "need to be expanded in the interests of national and international security", but did not name any target country by name.

Since then, Chinese officials have delivered a flurry of messages ranging from warnings to admonishments, in an effort to talk the Netherlands out of tightening its export restrictions.

Mao, the Foreign Ministry spokeswoman, had said in a press briefing in early March that China hoped the Netherlands would "respect the spirit of contract, refrain from abusing export control regimes ... and work to safeguard ... the shared interests of the Netherlands and China and the companies of the two countries".

Tan Jian, the Chinese ambassador to the Netherlands, warned in late March that the move would harm relations between the two governments and that the Netherlands risked losing its lead in chip-making technology if it cut itself off from the largest market in the world, according to an interview Tan had with local media Financieele Dagblad.

Although it seems the latest Dutch export controls have left room for Chinese companies to use ASML's lower-end equipment, that might change under further pressure from the US.

According to a Reuters report citing anonymous sources, Washington is expected to impose a new rule that could even put ASML's NXT: 1980Di machine out of Chinese hands.

Semiconductor manufacturing equipment is displayed at the AMT booth during Semicon China in Shanghai, June 29, 2023. Photo: Reuters alt=Semiconductor manufacturing equipment is displayed at the AMT booth during Semicon China in Shanghai, June 29, 2023. Photo: Reuters>

With tighter US restrictions looming, some chip-making experts declared that "globalisation is dead" at the Semicon China conference in Shanghai on Thursday.

Wei Shaojun, director of Tsinghua University's Institute of Microelectronics and an official at the China Semiconductor Industry Association, said China is the biggest victim of "deglobalisation" in the semiconductor industry.

"When globalisation is destroyed, [the industry] model has great shortcomings, as China cannot actualise the global allocation of resources," he told the conference.

However, some are hopeful China can find a different path forward.

Han Di, senior vice-president of Semiconductor Manufacturing International Corp, China's largest wafer foundry, said the country must find new ways to embed itself in cross-border supply chains.

"The traditional industrial cooperation mode is facing new challenges and opportunities," Han said. He suggested that China focus on chip materials and components, as well as developing the capability to manufacture advanced chips.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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