China has issued a stark warning to Japan, threatening severe economic retaliation if Tokyo proceeds with plans to further restrict the sale and servicing of semiconductor manufacturing equipment to Chinese companies.
Amidst growing tensions between China and Japan, China has warned Japan of the severe repercussions that could come if Japan decides to restrict the sale and servicing of Semiconductor manufacturing equipment to China. Toyota Motor Corp, one of Japan’s largest companies, has privately raised concerns with Japanese officials about China’s possible retaliation, which can block Japan’s access to critical minerals like gallium, germanium, and graphite.
China’s stance was communicated in recent meetings between senior Chinese officials and their Japanese counterparts. The Chinese foreign ministry reiterated its opposition to what it describes as the politicisation of economic cooperation and technological blockades against China. Spokesperson Mao Ning emphasised that “China has always been committed to maintaining the safety and stability of the global production and supply chain, and has always implemented fair, reasonable and non-discriminatory export control measures”.
Japan’s Semiconductor Restrictions: A Strategic Shift
In July, Japan began restricting exports of 23 types of semiconductor manufacturing equipment. These controls are designed to strategy to curb China’s capability to produce advanced chips, which have critical military applications. Japan’s measures include restrictions on equipment used for depositing films on silicon wafers and machines that etch microscopic circuits, essential components in the chip manufacturing process.
The United States has been pressing Japan to exercise export control on companies like Tokyo Electron, ASML holding and Toyota holdings to prevent them from selling advanced chip making tools to China. Toyota is heavily involved in the Japan automobile and semiconductor market. The company has also invested in a semiconductor facility constructed by Taiwan Semiconductor Manufacturing Company in Kumamoto. Many manufacturers beloved that this decision is an unnecessary provocation which can block Japan’s access to key minerals.
The semiconductor industry in China is still at the nascent stage where it requires high tech chips for some technology, however, these bans are likely to create hurdles in the market and artificially impact the demand and supply chain.
USA push on Japan:
The Biden administration in October 2022 halted the export of advanced chips to China in order to hinder the progress of China’s chip making industry. Since then, USA has been pressuring many countries to stop exporting chips to China. In May, the Group of Seven(G-7) decided to start implementing export controls on specific products to prevent China’s growing Influence. However, differences in chip making equipment controls could test that unity, should either gain a competitive advantage over the other by allowing exports the other blocked.
Japanese officials have expressed unease with the confrontational nature of the U.S. approach, noting that Japan’s policy does not explicitly identify any specific country as the target of these restrictions. “We feel an odd discomfort with how the U.S. is doing this. There’s no need to identify the country; all you need to do is control the item,” a Japanese industry ministry official told Reuters.
The U.S., Japan, and the Netherlands are working closely to harmonize their policies, seeking to add chipmaking equipment to the list of controlled dual-use goods under the Wassenaar Arrangement, an international export control regime. However, achieving consensus among the 42 member nations, including Russia, remains a significant hurdle.
Negotiations are underway with Japan, in order to coordinate and cooperate on the issues like Chinese retaliation. The U.S. is trying to ensure a stable supply of key resources to Japan and secure an agreement with them by the end of 2024.
