[Chip Talk] China Sweeps Semiconductor Equipment Market... The Long Road to 'Self-Sufficiency'

$1.1 Billion Imports Last Month... 10 Times More Than Last Year
Persistent Technology Gap... "China is 10 Years Behind"

It has been revealed that China imported a massive amount of semiconductor equipment from the Netherlands before the U.S. semiconductor regulations took effect at the end of last year. The reason China imported such a large volume of semiconductor equipment is interpreted as a self-help measure to increase the self-sufficiency rate from automotive semiconductors to advanced artificial intelligence (AI) semiconductors.

[Image source=Reuters Yonhap News]

China is challenging semiconductor technology and production independence with enormous capital investment, but it is still evaluated to be technologically more than 10 years behind in the global market. If U.S. regulations are further strengthened, the technological gap is expected to widen even more in the future.

China's Semiconductor Equipment Imports from the Netherlands Increase Tenfold Compared to the Previous Year

According to Bloomberg News on the 28th (local time), semiconductor equipment imported by China from the Netherlands last month was valued at $1.1 billion (approximately 1.47 trillion KRW). This amount is ten times higher than the $110 million recorded in the same month of the previous year.

After the U.S. government agreed with the Dutch government on export restrictions on semiconductor equipment in October last year, China's semiconductor equipment imports from the Netherlands surged sharply. It appears to be a stockpiling effort before the U.S. regulatory barriers were raised.

Bloomberg News pointed out, "China urgently purchased lithography equipment for semiconductor processing from the Netherlands just before the U.S. export regulations began, causing a significant increase in equipment import value," adding, "Chinese semiconductor companies will find it very difficult to access equipment necessary for advanced semiconductor manufacturing in the future, and the development of China's entire IT sector is also slowing down."

The total semiconductor equipment import value for last year, compiled by the General Administration of Customs of China, also increased by more than 14% compared to the previous year, reaching $39.6 billion. Bloomberg News reported that this is the second-highest amount on record since 2015.

The Chinese government set up a national support investment fund worth 300 billion yuan (approximately 56 trillion KRW) in September last year, aiming for semiconductor self-sufficiency. This fund is the third fund established by the Chinese government for investment in the semiconductor sector. Previously, funds of 138.7 billion yuan in 2014 and 200 billion yuan in 2019 were established.

In particular, the newly established fund attracted more attention as the Chinese Ministry of Finance contributed 60 billion yuan, accounting for 20% of the fund, and many state-owned enterprises such as China Development Bank Capital, China National Tobacco Corporation, and China Telecom participated. The government is putting its life on building a semiconductor self-sufficiency system at the national level.

ASML Achieves Record-Breaking Performance... "China Sales Expected to Decline by More Than 10% This Year"

[Image source=Reuters Yonhap News]

Amid China's massive equipment stockpiling, Dutch semiconductor equipment company ASML recorded record-breaking performance even in the fourth quarter (October to December) of last year, when the semiconductor market deteriorated. ASML's disclosed fourth-quarter net sales were 7.237 billion euros (approximately 10.5 trillion KRW), and net profit was 2.048 billion euros. Sales increased by 12.6% and net profit by 12.7% compared to the same period last year.

Last year's overall performance also recorded the highest ever on an annual basis. ASML's net sales last year were 27.559 billion euros, growing 30.2% year-on-year, and net profit was 7.839 billion euros, increasing by 39.4%.

However, as U.S. semiconductor export regulations against China are expected to be further strengthened, there are forecasts that sales in China will shrink significantly. ASML expects at least a 10-15% or more decrease in sales to China, making a deterioration in performance inevitable. Last year, Taiwan accounted for 30% and China 29% of ASML's sales, indicating a high dependence on exports to China, which will inevitably have a negative impact on overall performance.

Roger Dassen, ASML's Chief Financial Officer (CFO), said in an interview with major foreign media, "From this year, it is expected that even advanced models such as the NXT:2000i will not receive export permits to China," adding, "Due to the direct restrictions implemented by the U.S. in October last year, some fabs may not receive export licenses for older immersion equipment models like the NXT:1970i and NXT:1980i to China."

China Is Betting Its Life on AI Semiconductor Self-Sufficiency... "10 Years Behind"

[Image source=Reuters Yonhap News]

Chinese semiconductor company SMIC announced last year that it succeeded in mass-producing 7-nanometer (nm; one billionth of a meter) class semiconductors, and these chips began to be installed and sold in smartphones produced by Huawei. For automotive and general smartphone semiconductors, a certain level of self-sufficiency has been achieved.

However, China is not even close to producing the cutting-edge 1.5?2 nm class semiconductors, which have become the core topic in the semiconductor industry. These advanced semiconductors are the foundational technology for the AI field. If the self-production or import of these semiconductors is completely blocked, China could fall far behind in the AI technology competition.

It has been pointed out that due to the U.S. export regulations implemented so far, China is blocked not only from advanced semiconductor equipment but also from securing fundamental technologies, causing a technological gap of more than 10 years with the global semiconductor market.

Pat Gelsinger, CEO of Intel, said at the World Economic Forum (WEF) held in Davos, Switzerland, on the 18th, "The U.S. export restrictions on China have made China more than 10 years behind, and this gap will continue," adding, "The global market is competing to reach 1.5?2 nm, but China remains stuck at the 7?10 nm level. It will be difficult for China to fill the 10-year technological gap in the highly interconnected semiconductor industry worldwide."