Manufacturing equipment of semiconductor products Photo: VCG

 
On March 31, 2023, the government of Japan announced that it will supplement the Wassenaar Arrangement and impose export controls on 23 types of semiconductor manufacturing equipment which were not subject to prior restrictions , including all Deep Ultraviolet (DUV) Immersion Lithography systems. The Japanese government called for public comment on the new amendment until April 29 and will devise the final rules accordingly. Such decisions by the Japanese government will undoubtedly have a negative impact on the global semiconductor industry and backfire on Japan's own domestic industry.

Despite the fact that when Japanese Minister of Economy, Trade and Industry, Yasutoshi Nishimura, spoke to the press, he claimed that the move was not coordinated with US export control measures issued by the US on October, 2022. However, it's pretty obvious that the amendment is targeted at China and is a compromise by Japan under US coercion. Under the guise of preventing high-end equipment from being used for military purposes, the real intention of the new amendment is clear: Japan will follow the US policy to help it contain and suppress China's semiconductor industry. In fact, restricting equipment exports to China under the pretense of avoiding its military use is very naive, and its real intention is obvious to all.

The semiconductor industry is one of the world's most globalized industries. Over the past 40 years, the unification of the mobile communication standards has contributed to common standards for technologies and products of communication mobile devices. This has led to the development of the globalized supply chain, contributing to the prosperity of the global economy.

Integrated circuit chips, which are indispensable to mobile communication devices, have achieved globalization throughout the industry and supply chains. Meanwhile, the model of semiconductor industry has moved from the unified system house to IDM, which has further generated the model of "Fabless plus Foundry." In the new century, the industry has become increasingly fractionized giving birth to EDA, IP core and design services and other new business models. These new industrial models have significantly liberated productivity and promoted the prosperity of the global semiconductor industry.

For instance, many US semiconductor enterprises have located their production of high-end chip products in China's Taiwan, or South Korea, and the low-end ones on the Chinese mainland. For example, the chips used in the popular iPhone are designed in the US, produced in China's Taiwan, packaged in Southeast Asian countries and assembled together with other components from Japan, South Korea, Europe and China's mainland to form a complete phone, which is then sold worldwide. Without the global division of labor and cooperation, the cost of mobile phones would soar, while manufacturing profits would slump. Japan, China, and the US are all segments of the global semiconductor value chain, and one cannot survive without the other. The reason why the globalization of the semiconductor industry can be so thorough is that every segment in this industrial chain is a beneficiary. Once this global industrial chain is disrupted, every large and small enterprise under the current model will face difficulties. If China, one of the most important segments in the global chain, is in trouble, the global industry will also suffer, and the severity of the consequences is far beyond what we can imagine.

Japan is a semiconductor powerhouse that plays an important role in the global market. Since 1980s, its semiconductor industry has been suppressed by the US and has gradually shrunk in size. In recent years, even famous Japanese company Toshiba had to sell its facilities to Micron. Nevertheless, in the field of semiconductor manufacturing equipment, Japan still accounts for a large share of nearly 40 percent in the global market, contributing to the prosperity of the global semiconductor industry. It is crucial for the Japanese semiconductor industry to maintain its global market share and competitiveness, as it is facing an overall declining trend, and the Japanese political community is undoubtedly well aware of this. China's semiconductor industry is on the rise, with an annual investment of nearly $30 billion, with over $10 billion spent on purchasing Japanese equipment and materials. This is not an easy number to ignore for anyone. Over the past year, sales by US semiconductor equipment companies in the Chinese market have been constrained by their own government leading to heavy losses. If Japan restricts its export of advanced semiconductor equipment to China, Japanese companies are bound to repeat the mistake. Therefore, the Japanese government must learn from the past seriously and carefully and thoroughly consider the implications of any new export restrictions.

Over the past three decades, participants in China's semiconductor industry have made their arrangements and developed according to the principles of globalization. The trust in globalization is the reason why China's semiconductor industry has formed such close and effective relationships with global partners. It has been cooperating with partners from different countries and regions to promote the globalization of the semiconductor industry and maintain the security of its global supply chain. This is why we felt shocked and puzzled when the US decided to suppress the Chinese semiconductor industry. However, China does not respond tit for tat, but rather continues to resolutely maintain an integrated global industry chain. We are only forced to save ourselves in some areas that are choked by the US It is gratifying to see the rapid capacity-building and strong competitiveness of Chinese semiconductor equipment manufacturers, which has exceeded the expectation of most industry insiders. In the development of semiconductor equipment, China enterprises are catching up. Although there is still a big gap, the development potential is clear to all. Just a decade ago, China did not possess the ability to build any domestic semiconductor equipment, and now a considerable portion of equipment is produced domestically. With the support from the government, capital and markets, a prosperous and domestically supported Chinese semiconductor industry developed over time is not beyond China's reach. It is a great pity that Japanese companies may be forced to withdraw from this promising market under external pressure. The Japanese government should firmly stand by its enterprises and not do anything that will harm others without benefiting itself.

It's true that Japan may be under tremendous pressure, and the Japanese government has limited bargaining power in front of the US government. However, the Japanese government needs to be more rational, and the Japanese semiconductor industry should make a greater effort. The Japanese government could sit down for a careful discussion with the Chinese government to find proper solutions based on mutual benefit. From a perspective of the well-being of all mankind, this could prevent the situation from developing out of control. After all, maintaining the integrity of the global semiconductor industry chain is the best choice for all parties, and it requires our joint efforts.

The author is a professor of the School of Integrated Circuits, Tsinghua University. opinion@globaltimes.com.cn