What's in store for China-Japan relations as Japan's chip ban comes into force

Reuters reports that the 23 types of equipment include machines that deposit thin films on silicon wafers and etching equipment for microcircuits on chips that may be used for military purposes. However, in contrast to the U.S. restrictions on high-tech industries, Japan has opted for broad equipment controls rather than targeting China specifically.

Japan's Minister of Economy, Trade and Industry Yasutoshi Nishimura told the media when he announced the export restrictions in March this year that China was only one of the 160 countries and territories subject to the controls, and that Japan had no intention of following the example of the United States, i.e., of not targeting China alone.

Even so, China still warned Japan should make concessions, China's foreign ministry spokesman Mao Ning said on Monday (24) at a regular press conference, the Japanese side ignored the serious concerns of the Chinese side, insisted on the introduction and implementation of China's export control measures pointing to the obvious, the Chinese side is deeply dissatisfied and regrettable, and has been at different levels to the Japanese side to put forward serious representations.

Mao Ning said China urges the Japanese side to start from the overall situation of China-Japan economic and trade cooperation and its own long-term interests, abide by international economic and trade rules, refrain from abusing the export control measures, and avoid the relevant initiatives from interfering with the normal semiconductor industry cooperation between the two countries.

"We will pay close attention to the impact of the control policy and resolutely safeguard our own interests", Mao said.

Japan's export controls, which came into effect on the 23rd, will limit China's access to tools for etching microscopic circuits on advanced chips for smartphones, artificial intelligence (AI) and other applications, the Associated Press reported. The Netherlands has also joined the United States in restricting China's purchases of chip-making tools, which Washington says could be used to develop weapons.

China has invested billions of dollars in building Chinese chip foundries, but needs Western and Japanese technology to produce state-of-the-art chips. These restrictive policies, therefore, could delay Beijing's efforts to develop its tech industry.

The United States imposed restrictions on China's access to chips and chip manufacturing technology for the first time in 2019 under former President Donald Trump. The Biden administration expanded these controls to prevent China from acquiring chip design and manufacturing tools.

Reuters reports that the Japanese ban, if it will indeed go into effect, will still require further coordination between the US, Japan and the Netherlands. Meanwhile, the Biden administration in the U.S. is expected to update the restrictive rules in October, in part to align with Japan's list.

The AP report noted that Beijing's slow response to the semiconductor ban may be to avoid disrupting its fledgling tech industry. Last month, Beijing announced an export review process and possible restrictions on gallium and germanium, two metals used to make semiconductors, which has unnerved Japanese and South Korean chipmakers.

Reuters reports that both Japan and the US are concerned about China's push for advanced technology and in May reached a consensus with other Group of Seven (G7) members on reducing the risk of potential Chinese economic coercion. However, a Japanese government official said that Japan has not adopted the U.S. presumption of refusal standard and will allow products to be exported wherever possible.

In response, Reuters contacted six Japanese chip tool makers. Two of the companies - deposition machinery manufacturer International Electric Company (Kokusai Electric) and chip tool maker Tokyo Electron said the Japanese government's control measures on its business impact on the national limit.

Chip test company Advantest Corp also said its products were not affected. Semiconductor lithography manufacturers Nikon and Canon, as well as wafer cleaner manufacturer Screen Holdings did not respond.

Another Japanese official said Tokyo was concerned that targeting only China would trigger damaging retaliation, such as a ban on Japanese electric cars.

"What good does it do to embarrass others, unless that's what you're after", the official said.
 

China has struck back for the first time in a series of chip bans against the country - on 21 May, China declared that Micron's products "pose serious cybersecurity risks" and "pose significant security risks to the supply chain of critical information and infrastructure" in China, affecting national security. infrastructure supply chain", affecting national security. It demanded that China's "critical information infrastructure operators should stop purchasing Micron products".

Micron is the largest U.S. maker of memory chips, which are used in a wide range of electronic devices, and the Chinese market accounts for about 10 per cent of the company's total sales.

Xing Yuqing, a tenured professor of economics at Japan's National Graduate School of Policy Studies University, wrote that Chinese companies clearly do not grasp the "choke points" of the semiconductor industry and technology. Therefore, it is impossible to impose a reciprocal technology embargo on the United States.

Xing Yuqing said, but China's popular saying is to market for technology, now the United States opened the semiconductor technology embargo, which means that the two sides on the market for technology, the end of the tacit understanding. Do not give technology, naturally, do not expect the market. This is China's use of the market advantage of a counterattack, the effect of how to see how the United States play their cards.

But from Japan's point of view, there are advantages to China and the United States tearing each other apart. Just as China announced its regulation of Micron, Bloomberg cited people familiar with the matter as saying Micron Technology will receive about $1.5 billion in funding from the Japanese government to produce next-generation memory chips locally, which is favourable to boosting Japan's domestic semiconductor production and creating a backup for Taiwan's chip production.

Randall (Stew Randall), an analyst at Intralink, a Shanghai-based consulting firm, believes that Chinese companies will lose access to a lot of Japanese equipment and parts despite export restrictions, although most of China's chip companies are now focused on more mature production nodes, which are less likely to be affected, but we will have to wait and see what happens.

In the long run, Chinese companies in the comprehensive export restrictions, the ability to self-research chip will be greatly affected. For example, in the design of the necessary software - electronic design automation software EDA, the three giants in the field are U.S. companies; manufacturing link in the core lithography, China also does not have the ability to independently manufacture, and the main lithography companies are subject to the U.S. ban on the clampdown. If you get rid of the existing technology achievements, from zero accumulation, investment capital and cycle are too big and too long.

And these effects, will follow the chip to continue to the downstream conduction of the industrial chain - mobile phone companies will decline in international competitiveness, such as Huawei had to withdraw from the international mobile phone market; electric cars are becoming China's most promising pillar industry, the number of exports in April reached 91,000 units, an increase of 1,028.5% year-on-year, while the average electric car electric cars use about 3,000 chips, more than twice as many as non-electric cars.