Dutch Prime Minister Rutte's China visit focussed on export restriction of chip-making equipment

Dutch Prime Minister Rutte's China visit focussed on export restriction of chip-making equipment

Dutch Prime Minister Mark Rutte visited Beijing last week and met Chinese President Xi Jinping and Premier Li Qiang, as the Netherlands’ export restrictions on semiconductor manufacturing equipment strains ties between the two countries. Rutte was accompanied by Acting Trade Minister Geoffrey van Leeuwen. With the Netherlands caught in the crossfire of China-U.S. trade tensions, the visit was focused on the licensing policy of Netherlands-based ASML, the world’s biggest developer of advanced semiconductor equipment for chip makers. The company dominates the world market for the lithography systems manufacturers need to build the most advanced integrated circuits. The state-of-the-art equipment has become a major battleground in the U.S.-China tech war. The U.S. government has pressed allies, including the Netherlands, Germany, South Korea and Japan, to tighten restrictions on China’s access to semiconductor technology.

ASML previously announced that starting from January 1, it no longer expected to be able to obtain licenses from the Dutch government to ship advanced deep-ultra violet lithography tools to Chinese customers. However, the extent to which ASML would be able to continue to service the equipment it had already sold to Chinese customers – valued at more than €6 billion last year alone – remained uncertain. According to ASML's financial results, China rose to become its second largest market in 2023, accounting for 29% of its sales, or more than €6.4 billion, underlining the significance of the Chinese market.

The Dutch government said it would spend USD2.7 billion in the Eindhoven region to ensure the Netherlands' largest company ASML doesn't move its operations abroad. ASML warned in January that U.S. export controls would affect its sales in China by 10% to 15% in 2024. Chinese experts said that the “small yard, high fence” of the U.S. government will not stop China's innovation-driven development, nor will it do any good to U.S. companies or the entire semiconductor industry. Open cooperation is the core driving force for the growth of the semiconductor industry and China is one of the major semiconductor markets in the world, they noted.

The Netherlands is China’s second-largest trading partner in the European Union after Germany, according to the European Commission. In 2023, the Netherlands was the largest importer of goods from China, and the third largest exporter of goods to China, after Germany and France. In a call with his Dutch counterpart last May, the Chinese Premier hailed the Netherlands as a “priority partner” within the EU. In March, the Netherlands closed its Consulate in Chongqing without providing a reason, the South China Morning Post reports.

Meanwhile, U.S. Under Secretary of Commerce for Industry and Security Alan Estevez said that Chinese chip maker Semiconductor Manufacturing International Corporation (SMIC) “potentially” broke American law if it manufactured a 7-nanometer processor for sanctioned Huawei Technologies, used in its Mate 60 smartphone. “We’ll assume that it was SMIC. I can’t talk about any investigations that may or may not be ongoing, but we certainly share those concerns,” Estevez added. He described SMIC’s manufacturing process as “low-yield”, repeating past comments from Commerce officials questioning China’s ability to produce advanced chips at scale and with a consistent performance. Estevez heads the agency’s Bureau of Industry and Security, which is responsible for chip export controls and sanctions that the Biden Administration hopes will kneecap China’s semiconductor ambitions.

Commenting on a list being drawn up by the U.S. Commerce Department barring Chinese chip factories from obtaining key tools, Chinese Foreign Ministry Spokesperson Lin Jia urged the U.S. to immediately correct its wrongdoings and stop its illegal unilateral sanctions and long-arm jurisdiction against Chinese companies. “China always firmly opposes the U.S. technology crackdown against China, its sanctioning and suppressing of Chinese companies aimed at curbing China's development,” Lin said, noting that such actions seriously damage the legitimate rights and interests of Chinese companies. These actions seriously violate the principles of the market economy, gravely undermine international trade norms and seriously affect the stability of the global semiconductor industrial and supply chains, Lin said. “We will closely monitor the situation and resolutely safeguard the lawful interests of Chinese companies,” Lin added.

“The message, as disclosed in the media, showed that the Biden Administration is under great pressure from within the U.S. and its semiconductor industry to draw the boundary of its so-called “small yard” so that business outside the prohibited areas can proceed,” Gao Lingyun, an expert at the Chinese Academy of Social Sciences, told the Global Times. “Now it is rather blurred.”

The news came as the CEOs of some leading U.S. semiconductor companies, including the CEOs of AMD, Qualcomm and Micron, attend the China Development Forum (CDF) in Beijing, expressing their commitment to the Chinese market and willingness to pursue cooperation. Meanwhile, China's Ministry of Commerce (MOFCOM) strongly objected to the latest revision of the U.S. semiconductor export controls rules less than six months after they were first introduced. The new 166-pages rules will go into effect on April 4, and they expand the restrictions to laptops containing restricted AI chips.