China's import of Dutch chip manufacturing equipment surges tenfold

The value of China's imports of key chip-making lithography systems from the Netherlands soared 1,050% in November, indicating that domestic semiconductor companies have not yet been cut off from receiving certain equipment orders due to tightened U.S. export rules.

Last month, China imported 16 Dutch projection systems worth US$762.7 million, a 10-fold year-on-year increase. In comparison, 21 lithography systems worth $672.5 million were imported from the country in October. The 46% difference in average price per unit suggests Chinese companies are continuing to acquire more advanced systems despite Washington's attempts to block such efforts.

The Netherlands is the largest exporter of lithography machines, used to make the world's most advanced chips, and almost all of this equipment comes from one company - ASML.

In November, China imported a total of 42 lithography systems worth US$816.8 million. Fifteen of them are from Japan, home to industry giants Canon and Nikon. The Netherlands and Japan accounted for nearly all of China's spending on such imports last month.

Lithography tools are complex projection systems that are the most important of the 10 types of equipment required in the manufacturing of integrated circuits. China is considered years behind on this technology and has largely failed to close the gap with leading companies despite huge government investments.

Although China has been pushing a technological self-reliance agenda for years, as of 2021, less than 5% of lithography systems used in Chinese fabs were manufactured in China, according to data provided by state-backed CanSemi at a 2020 industry forum. Made in China.

Japan and the Netherlands imposed export controls on chipmaking equipment after agreeing to U.S. demands in January, affecting sales to China.

The surge in imports for the second straight month comes on the heels of the U.S. Commerce Department expanding export control rules targeting China in October. In a section on lithography systems, the U.S. repealed a "minimum" rule that applied to certain deep ultraviolet (DUV) tools that set higher standards than the Dutch government's export rules that took effect in September.

The de minimis rule would give Washington long-arm jurisdiction over any product by a non-U.S. company if it contains at least 25% U.S.-origin technology. However, the latest tweaks to the rule essentially make the proportion of such technology irrelevant.

New rules, effective last month, restrict ASML of the Netherlands from shipping certain immersion DUV lithography systems, including its Twinscan NXT:1980Di, to a handful of fabs involved in advanced semiconductor manufacturing in China, the company's third largest geographic market. .

However, ASML CEO Peter Wennink said the latest restrictions exclude the vast majority of Chinese customers involved in mature or legacy semiconductor manufacturing at 28 nanometers and beyond.

ASML declined to comment for this story.

Analysts were divided on how to interpret last month's import growth. Some said the price surge could be the result of a rush to ship goods before restrictions took effect.

"Most Chinese fabs can still buy DUV [systems] from ASML," said Dylan Patel, principal analyst at SemiAnalysis, a San Francisco semiconductor research firm.

"There will not be an immediate drop in sales, as devices shipped in November 2023 will most likely be licensed in late 2022 or early 2023," said Jan-Peter Kleinhans, director of technology and geopolitics at Stiftung Neue Verantwortung.

Kleinhans said ASML's lead time in mid-2023 is about 18 months, meaning equipment shipped in the fourth quarter of 2023 will be ordered in the second or third quarter of 2022, with ASML applying for exports at a later date license.

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