The continuous shortage of semiconductors which has been affecting the tech industry for the last couple of years has led Chinese manufacturers to look to stockpile equipment that will be used in making more semiconductors amid new regulations from the coordination between the United States, Japan, and the Netherlands.
According to an insider’s report, the US government under president Joe Biden has apparently reached an agreement with governments from both Japan and The Netherlands in order to further enforce export restrictions on the sales of advanced chip-making gears to China.
This will be an upgraded de facto ban on sales to China which the US government has sought to upgrade since last October.
The new development is leading to panic purchases among buyers in the country who think they will ace escalating curbs on equipment purchases.
According to the insiders who spoke in anonymity over the sensitivity of the matter made it known that one of the major Beijing-based chip makers has filled several large warehouses with materials and components including those not even on the US export control list in order to stay in business as the potential restriction loom over China.
The report also made it known that many companies are in fact, ver purchasing components and equipment beyond what is needed for current production plans.
As mentioned earlier the reason for this is due to the fears of greater export restrictions posed by the new accord by the aforementioned countries.
Although there isn’t an official agreement must yet, the report added that Japanese companies are also waiting for clearer guidance on export controls as new rules targeting advanced chip technologies are expected to be enacted by April.
There has been little hard data so far showing stockpiling, although anecdotes align with what happened during previous chip restrictions from Washington. China’s official customs data for January and February will be released in early March.
The fact that Japan cooperated with the United States over the matters has raised a big alarm on the sides of Chinese clients and now, even traders with second-hand machines are reporting a notable surge in inquiries.
For the records, China’s imports of chip-making equipment were at their low back in November and December over the stricter regulations from the US.
China was only able to import some 4,789 units by December which was a huge 35.3% drop in year-on-year importation of semiconductors.
Annual imports last year also shrank by a huge 15.3% by volume compared with 2021.
Semiconductor Manufacturing International Corp (SMIC) which is China’s biggest contract chip maker warned this month that mass production at its new US$76 billion plant in Beijing could in fact be postponed by one or even two quarters due to difficulties in securing necessary equipment.
Although there has been a lot of condemnation from the China Semiconductor Industry Association (CSIA) over further export control deals between the US, Japan, and the Netherlands which are yet to reach a formalization.
The panic buying from chip firms shows how Washington’s restrictions are impacting Beijing’s pursuit of technological self-reliance.
The lofty goal, which focuses on independence from US technologies, is a tall order, as the complex semiconductor supply chain – from raw materials to equipment production – spans several countries around the globe.
China’s incapacitated domestic supply chain has led local manufacturers and equipment companies to buy a significant number of spare parts and materials because getting cut off by major countries wh produces these technologies would be devastating to Chinese manufacturing prowess.
“This is similar to what Huawei did, which is why it took a considerable amount of time before Huawei’s business slowed,” said to Dylan Patel, the chief analyst at research firm SemiAnalysis.
His statement was a reference to Huawei stockpiling advanced chips in 2020 when it was banned by the US.
Even with greater coordination on export restrictions, China will not be completely cut off from supplies from Japan and the Netherlands, said Nicolas Gaudois, head of Asia-Pacific technology research at UBS Investment Bank.
“But it’s not enough to support China’s capacity expansion on the leading-edge, because … it’s necessary to have the whole sequence of equipment for each manufacturing process step, which includes equipment sold by US companies,” he said.
Analysts believe the US restrictions issued this past October – aimed to cap China’s logic hips at 14-nanometre process node, DRAM at 18-nm, and 3D NAND flash at 128-layers effectively take advanced chip-making off the table for major Chinese manufacturers which has more recently focused on more mature nodes at 28-nm level and above. These processes are more cost-efficient for a number of applications, including automotive and the Internet of Things.
While the US, Japan, and the Netherlands have yet to officially disclose details of their agreement, observers speculate that it will affect Japanese deep ultraviolet (DUV) system suppliers, whose equipment could be used for advanced chip making.
Suppliers that fall into that realm include big tech giants like Nikon, which makes immersing DUVs, and Toky Electro, which makes etching and testing equipment.