Export curbs to damage Japan’s chip sector

Controls on selling to China will ‘cause huge losses’ for industry, experts warn

Japan’s chip export controls will deal a heavy blow to its chipmaking equipment companies, as most of them count China as their largest market, Japanese and Chinese experts said.

Highlighting that being Washington’s pawn will only harm Tokyo, they said the restrictions will motivate Chinese companies to pour in more resources for breakthroughs in crucial technologies.

The comments came as Chinese Commerce Minister Wang Wentao urged Japan to correct its wrongdoing of imposing chip export controls, which seriously violated international economic and trade rules.

Wang made the comments during talks with Yasutoshi Nishimura, Japan’s minister of economy, trade and industry, on May 26 at the 29th APEC trade ministers’ meeting in Detroit in the US state of Michigan, according to a statement released by the Ministry of Commerce on May 29.

China is willing to work together with Japan to promote pragmatic cooperation in key economic and trade areas, and provide a fair, transparent and predictable business environment, Wang said.

Tokyo said earlier in May that it will put restrictions on exports of 23 types of crucial chipmaking equipment starting in July, aligning its trade rules with the US push to curb China’s ability to make advanced chips.

Experts said such rules are overly broad and the scope of controlled items far exceeds the internationally accepted list of controlled items, which will weigh heavily on the companies concerned.

Takamoto Suzuki, who heads economic research at Marubeni, a Japanese conglomerate engaged in trading and investment, said the problem is that Japanese chip companies depend heavily on exports because the domestic chip market is not robust.

“This situation could impede the progress of the Japanese industry and ultimately diminish its competitiveness,” Suzuki said.

The Chinese mainland is the largest export destination for Japanese semiconductor equipment manufacturers. In 2022, such exports from Japan to the Chinese mainland reached 820 billion yen ($5.85 billion), exceeding 30 percent of Japan’s total chipmaking equipment exports, according to data from the Chinese Academy of International Trade and Economic Cooperation.

Zhang Wei, vice-president of the academy, said that for Japanese chip equipment makers, the Chinese mainland market accounts for about 20 to 30 percent of their overall sales revenue.

“The restrictions will cause huge losses for them,” Zhang said.

The impact is already evident. Tokyo Electron, which derived about 26 percent of its total net sales from the Chinese mainland market in fiscal year 2022, is anticipating significant downward pressure. The company expects its annual revenue to fall 23 percent from a year earlier to 1.7 trillion yen in current fiscal.

“Our output may be small now and a quality gap still exists. But the restrictions have made us more determined to achieve breakthroughs,” a senior executive from a Chinese chip company said on condition of anonymity.