[Chip Talk] US Blocked, Now Japan Too... China Semiconductor Equipment Export Restrictions Spur Busy Countermeasures

TCL, BOE and Other Chinese Companies Plan to Build Domestic Supply Chains
Efforts to Minimize Export Regulation Impact

China is busily preparing countermeasures against Japan's semiconductor equipment export regulations, which will take effect from the 23rd of next month. As Japan aligns with the Biden administration's export restrictions on China, China is seeking survival strategies such as domestic production of semiconductor equipment.

[Image source=Reuters Yonhap News]

The Hong Kong South China Morning Post (SCMP) recently reported that China's display industry, which holds the world's number one market share in displays, is going through hectic days ahead of the application of these Japanese regulations. China's overwhelming market share in displays originated from technology and equipment imported from Japan.

TCL Technology, the world's second-largest TV set manufacturer by sales, recently announced to investors that it has rapidly expanded its domestic supply chain for stable operations. Chinese display panel manufacturer BOE Technology is also promoting the localization of raw materials to secure supply chains and minimize risks. Chinese semiconductor process equipment company PNC Technology plans to actively nurture domestic suppliers to replace equipment previously imported from South Korea and Japan.

Starting next month, Japan will require economic and industrial approval for the export of 23 advanced semiconductor-related items, including lithography equipment that records delicate circuit patterns on substrates, and devices used for cleaning and inspection. This is the result of an agreement reached in January after the United States, which first introduced semiconductor equipment regulations targeting China in October last year, persuaded Japan and the Netherlands, leading countries in the industry. Although the measure does not explicitly state that it targets China, industry experts and foreign media evaluate it as effectively aimed at China.

China has reacted more sensitively to Japan's measures than to the U.S., which first introduced semiconductor export regulations in October last year. This is because Japanese products account for the largest share of semiconductor manufacturing equipment imported by China. The Chinese state-run media Global Times reported that the scale of semiconductor manufacturing equipment exports from Japan to China last year exceeded 820 billion yen (approximately 7.45 trillion KRW), which is 30% of Japan's total semiconductor exports.

The scale of Japan's semiconductor manufacturing equipment exports to China is about twice that of the U.S. exports to China. In particular, Chinese semiconductor manufacturers heavily rely on Japanese-made photolithography, etching, and thermal processing equipment, according to Zhong Hua Jin Securities. Last year, the share of Japanese products in China's total imports of these three types of equipment reached 28%, 31%, and 59%, respectively. Moreover, Japanese equipment is also necessary for the supply of general-purpose semiconductors that China has been intensively cultivating to circumvent U.S. regulations.

Since the Japanese government announced the export control targets in March, the Chinese government has protested the sanctions and demanded their withdrawal, but Japan has shown little response. If the Netherlands follows Japan soon with semiconductor equipment regulations, China is expected to face even more difficult circumstances. China has already been hit by U.S. export restrictions. The Semiconductor Equipment and Materials International (SEMI) reported that China's semiconductor equipment sales in the first quarter of this year amounted to $5.9 billion (approximately 7.5 trillion KRW), a 23% decrease compared to the first quarter of last year.