Post by 华山穹剑 from beijing

Since the United States launched a trade war against China in March 2018, almost all available means have been used, but most of them have failed.

Only in the field of chips, the United States has the upper hand.
Therefore, the United States has been imposing sanctions on China in the chip field for several years.
In the second half of this year, the United States increased its sanctions on Chinese chips, wave after wave, from limiting China’s high-end graphics processors to the United States pulling the Netherlands and Japan to restrict the export of semiconductor equipment to China two days ago.
If the world’s three major suppliers of semiconductor plants, the United States, Japan and the Netherlands, all restrict the export of chip equipment to China, this will be very unfavorable to China, especially before the successful localization of China’s semiconductor equipment.
However, will Japan and the Netherlands listen to the US’s request for restrictions on China? At this time, the Sino US chip war has been extended to the greatest extent. The result of the expansion of the Sino US chip war is either that the United States will clamp down on China for another two years, or that the allies will stare at the request of the United States. The allies will reject the request of the United States, or they will be in defiance of the request of the United States.
What is it and what will its impact be?
Most importantly, what is the possible development outcome of the China US chip war in the next few years?
The Sino US chip war has been going on for more than three years since May 2019, when the United States first issued a restraining order against Huawei. In addition to imposing sanctions on Huawei chips, the United States also used the physical list to include hundreds of Chinese enterprises and entities, all for national security reasons.
Therefore, Peter Wennink, CEO of ASML, the Netherlands, said in an interview with the New Rotterdam Business News that the national security in the United States is completely defined by the Americans themselves.
Winpeter made no secret of his dissatisfaction with the United States.
On the surface, both Japan and the Netherlands dare not go against the requirements of the United States and will follow the United States to restrict the export of semiconductor equipment to China.
However, there are also variables. Semiconductor equipment manufacturers in Japan and the Netherlands are resisting the requirements of the United States, hoping their governments can reject the United States.
There are two main reasons why semiconductor manufacturers in Japan and the Netherlands are dissatisfied with the United States.
First, the restraining order affects the revenue of Japanese and Dutch semiconductor manufacturers.
Second, although the United States has issued a restraining order, it often provides exemption to its own chip manufacturers.
Thus, it returns to the phenomenon of “America first”. American chip manufacturers can sell chips or equipment to China, but American allies have not been exempted from selling.
For a long time, the United States is trying to benefit its own manufacturers, but restricts chip manufacturers and semiconductor equipment manufacturers in other countries.
China is a big buyer of Dutch ASML, and ASML certainly does not want to lose the Chinese market.
Here is a debate. Is the Chinese Mainland market important to ASML?
In the first quarter of 2022, the proportion of ASML in several major sales countries or regions is 34% in Chinese Mainland, which is quite high.
In the same quarter, Taiwan accounted for 22%, South Korea 29% and the United States 6%.
But soon in the second quarter, Chinese Mainland accounted for only 10%, Taiwan 41%, South Korea 33%, and the United States 10%.
In just one quarter, the revenue share of Chinese Mainland in ASML fell a lot. So some people think that they should not take themselves too seriously. The Chinese market is not so important to ASML.
How to evaluate such a statement? Chinese Mainland bought 23 sets of DUV lithography machines in the first quarter of this year, and the purchase volume soared.
As for the number of DUV lithographers in the second quarter, there is no obvious data.
However, the purchase volume in the second quarter must be lower. Why does it decrease?
The first possible reason is that the demand for DUV lithography machines in Chinese Mainland is not so high, and we have already bought enough before.
The second possible reason is that the level of domestic equipment in China has improved.
Didn’t Shanghai Microelectronics launch a 28nm DUV lithography machine last year? If the localization of DUV lithography machine in Chinese Mainland is successful, the demand for DUV lithography machine from ASML in the Netherlands will naturally decrease.
However, Shanghai Microelectronics’s 28nm lithography machine did not pass the acceptance at the end of last year. On this point, we speculated that there was another possibility.
The 28nm lithography machine of Shanghai Microelectronics has come out, but it still needs optimization.
Because the mainland is low-key, it is unwilling to show up at this time to stimulate the United States. It is better to keep a low profile and continue to optimize during this period.
On the other hand, it may also be because of the “patent” relationship. In this regard, please refer to our previous statement.
However, even if the localization of DUV lithography machine in Chinese Mainland has been successful or is close to success, according to the conservative approach of the mainland, or the practice of hiding strength and not showing the edge, we will still buy more before the United States completely prohibits it.
This explains why in the first quarter, Chinese Mainland purchased 23 sets of DUV lithography machines.
This can be used first. In the chip war, if there is demand, buy more as a reserve.
But there is a third possible reason. As ASML’s EUV lithography machine has the highest unit price and the highest profit, China’s share of this extreme revenue will naturally decrease under the condition that Taiwan or other countries purchase large quantities of EUV lithography machines.
However, in economics, in addition to direct data, we also need to look at “opportunity cost”. If ASML can break the ban and sell EUV lithography machines to China, the revenue will definitely increase, which is the opportunity cost of ASML.
According to the CEO of ASML, ASML has already undertaken many losses due to the ban of the United States. In other words, ASML has lost a lot of revenue.
Therefore, we can’t look at it from some statements on the network. For ASML, the Chinese Mainland market is indeed a huge opportunity.
China is the largest chip market in the world and buys the most chips in the world. Why is it that China will not become the largest customer of ASML in the Netherlands? Without the ban of the United States, ASML’s sales would surely increase.
The same is true for Japanese semiconductor equipment manufacturers. The annual trade volume of China and Japan in semiconductors amounts to billions of dollars. Without these billions of dollars, who will Japanese semiconductor equipment manufacturers sell to? This is a big problem.
There is a more serious problem. Without the Chinese market, Japanese semiconductor equipment manufacturers may lack enough revenue to sustain. The global semiconductor equipment market is so large that only a few countries will buy it.
In addition, the Japanese semiconductor equipment manufacturers will compete with the Dutch ASML company and the American semiconductor equipment manufacturers.
As a result, the United States has brought TSMC and Samsung’s wafer factories to the United States to set up factories. The United States controls these wafer factories, and its own semiconductor equipment manufacturers can sell more easily.
By this time, who will Japanese semiconductor equipment manufacturers sell to? Japanese semiconductor equipment manufacturers will be once again trapped.
This practice of the United States is actually “benefiting oneself at the expense of others”. The name of the United States is that selling chips and semiconductor equipment to China will harm the national security of the United States, while the Netherlands and Japan are allies of the United States. Therefore, Japan and the Netherlands must cooperate with the United States policy to restrict sales to China.
But in fact, the United States will later open the door to its own manufacturers and grant them a certain degree of exemption.
However, in the long run, it may not be self serving.
It is understandable that the United States has increased its strength in its own areas of advantage, because it has almost failed in other areas. Therefore, the United States has increased the tension of chip sanctions again, trying to force Japan and the Netherlands to comply.
At this time, the United States also faced great risks.
First, no one knows whether China can and when it will be able to make EUV lithography machine. However, no one doubts that the DUV lithography machine can be built in Chinese Mainland, which is just a matter of time.
Although the 28nm DUV lithography machine of Shanghai Microelectronics has not passed the acceptance, it is just to spend more time to improve and optimize it. What’s more, we think the mainland is just low-key and unwilling to publicize.
The United States is now moving the scope of restrictions to mature processes, to limit China’s 14nm equipment. It can only hold China back for some time, not for long.
As a result of such restrictions, even before the successful localization of equipment in Chinese Mainland, the United States and its allies will lose a large amount of revenue, let alone after the successful localization of equipment in Chinese Mainland, the United States and its allies will lose the entire Chinese market, which has no room for manoeuvre and will not turn back.
Second, the United States has stretched the tension too much, and the pressure of the allies is approaching the critical point. Allied countries can’t sell things to China, they have to compete with each other. Without China’s market, the whole market will become smaller.
If Japan and the Netherlands listen to the self imposed restrictions of the United States, it will cause great pressure on everyone. As the market becomes smaller, the United States will be blamed for the grievances. It will be more difficult for the United States to ask its allies to cooperate in other areas in the future.
China may be ready
What is the strength of Chinese Mainland in chip equipment? How many aspects of localization success? This is the most suspicious because of the few data disclosed.
In May 2020, the Trump government imposed a zero technology chip blockade on Huawei. Why didn’t Chinese Mainland actively counter the United States at that time? Some people said that this was because the mainland was cowardly and did not dare to impose sanctions against the United States. Others said that China lacked leverage and could not impose relative sanctions on the United States.
In fact, there is another possibility. After evaluation, Chinese Mainland believes that China can promote chip manufacturing technology to a certain extent.
The evidence of this statement is that China plans to increase the self production rate of chips to 70% by 2025, which has not changed up to now.
Another evidence is that, according to data, the number of chips imported from China in the first nine months of this year has decreased by 80 billion, or 12%.
This shows that China’s chip manufacturing rate has increased, and also shows that the proportion of domestic chip equipment in China has also increased.
As soon as we talked about it, some overseas media had another comment. Some overseas media said that the decline in chip imports in Chinese Mainland was the result of economic stagnation or decline due to the closure of the epidemic.
Is that right? According to foreign media, the economy of Chinese Mainland should also decline by 12%, or at least by 2% – 3%.
But let’s look at the economic growth data of Chinese Mainland.
GDP in the first three quarters increased by 3.0% year on year, which is still growing. According to the principle of economic growth, chip imports should also increase, but the result is a decrease.
According to a foreign media (rfa), “some experts believe that the sharp decline in China’s chip imports is related to the chip restrictions of the United States and the economic downturn caused by the closure of the epidemic”.
In any case, writing the two reasons together increases the reasons for explanation, and many readers will not go into it. However, its title still reads: “Experts: Blocking Control Causes Economic Stagnation”. We don’t know who or who the “anonymous” expert is.
What is China’s response to the US’s expanded attack on Chinese chips?
On December 12, Chinese Mainland filed a lawsuit with the WTO.
The Ministry of Commerce of China said: “In recent years, the US side has been constantly generalizing the concept of national security, abusing export control measures, obstructing normal international trade of chips and other products, threatening the stability of the global industrial chain supply chain, disrupting the international economic and trade order, violating international economic and trade rules, violating basic economic laws, and harming the interests of global peace and development, which is a typical trade protectionism.
China’s filing a lawsuit at the WTO is a necessary way to solve China’s concerns through legal means and safeguard its legitimate rights and interests.
After Japan and the Netherlands “agreed in principle” to join the United States and restrict the export of chips and equipment to China, China filed a lawsuit in the WTO.
China is right in doing so, and it can take legal action. However, it also means that China may not take anti sanctions measures to retaliate against the United States.
China has several advantages in doing so.
First, expand US sanctions to international events.
The United States dragged its allies to impose sanctions on China’s chips, which was originally an international event, and it was appropriate for China to put it on the WTO.
Second, we should be polite before we fight.
China will sue Washington to the WTO, even though the WTO is likely to delay, because the United States blocked the selection and appointment of new WTO judges as early as 2019, resulting in the forced suspension of the WTO Appellate Body.
The US side seems to be preparing for the next trade war, tariff war and various sanctions with other countries (mainly China).
However, China can still carry out trade retaliation or sanctions against the United States later.
Third, it is a warning or a warning signal to the allies of the United States. It is against international law to restrict China with the United States, and it will eventually lead to its own losses. The United States may also impose similar sanctions on them in the future.
Now let’s talk about the possible development results of the China US chip war in the next few years.
First, in addition to the fact that the United States has played well in chip sanctions and has repeatedly increased its weight, it is also because of the anxiety of the United States. It is because many other attacks against China have failed.
In addition to the chip war, what new strike measures can the United States introduce?
Therefore, the next two or three years will be an important period for the United States to play games with China. The previous anxiety of the United States was reflected in the Taiwan Strait. The United States felt that the military balance in the Taiwan Strait was leaning towards the Chinese Mainland step by step.
In particular, this year, the United States has repeatedly released news that the mainland will attack Taiwan in 2027.
In addition to military anxiety, the United States also urged TSMC to move equipment to the United States as soon as possible. The United States could not wait for TSMC to buy new equipment, but simply moved TSMC’s production capacity directly.
In addition, the United States has also accelerated its pace. The Senate Foreign Affairs Committee has passed the Taiwan Policy Act, and the recently passed National Defense Authorization Act, which will provide 10 billion dollars of military assistance to Taiwan in the next five years.
In addition to intensifying the struggle against China, the United States is also constantly stepping up its preparations because of its sense of urgency.
The conclusion is that the United States will continue to increase its weight next year and the year after. China can’t think that the United States has played almost enough in the chip war, so it takes it lightly,
Second, the real counter-measures of Chinese Mainland are not in the WTO. WTO litigation is just a diplomatic effort to fight for the right to speak for China and form momentum. The real countermeasures are chip technology, especially manufacturing technology and related equipment.
In the next two or three years, if the manufacturing technology and equipment of Chinese Mainland in the mature process are successfully localized and can be effectively mass produced with its own equipment, the mainland will win at this stage.
Once so, the Japanese and Dutch manufacturers who participated in the sanctions against China will regret it. Because they will lose the Chinese market forever. For Japan, that was a second failure.
In 1986 and 1991, Japan and the United States signed semiconductor agreements respectively, which eventually led to a serious decline in Japan’s semiconductor industry and a large loss of global market share to South Korea and Taiwan.
The United States, the initiator, will certainly be more affected. In the financial report of listed companies in the United States in the third quarter, many chip industries experienced significant declines in revenues and profits.
This year has been like this, let alone the next two years.
What does that mean? This shows that the United States has suffered serious damage after it attacked China in many ways for the first time.
The United States has attacked Huawei before, but the United States can get alternative 5G communication equipment. Nokia and Ericsson can both be Huawei’s alternative manufacturers.
However, the United States banned the sale of chips and equipment to China, and expanded the scope of the ban, which lost the Chinese market. However, there is no substitute market without Chinese market.
Therefore, the overall chip war between China and the United States is now the real start. Previously, it was all foreplay and appetizers, but now it is the real fight.
Let’s make the final inference.
Continuing our statement in May this year, “From the revenue of TSMC, the mainland 28nm localization was successful?”? At that time, we speculated that a large proportion of chip equipment with mature technology of 28nm in Chinese Mainland should be successfully localized.
This includes chemical materials and EDA chip design software.
In 2025, three years from now, will China’s chip self production rate reach the goal of 70%? This is the most interesting and expected answer.
I think this goal can be achieved in mature process chips in three years’ time, or even exceeded, and this proportion will also include 14nm chips.
In September this year, the director of Shanghai Economic and Information Commission announced that SMIC had achieved mass production of 14nm chips. However, the real breakthrough is to support the mass production of 14nm chips on domestic equipment.
This will cover a wide range of chip fields, from chip design, manufacturing to production, including all kinds of logic chips. The localization of chip equipment in China will promote the improvement of self production rate.
The next stage of the Sino US chip war will be on high-end chips after 2025.
The conclusion is that the United States has imposed an extreme blockade on Chinese chips. Once Chinese Mainland has broken through the technical bottleneck, the American chip industry will also suffer great losses.
In fact, due to US restrictions on China, the US chip industry will suffer from more revenue and profit problems next year.