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Along with the US, Japan and the Netherlands have strict chip controls on China

On Friday, after years of pressure from the United States, Japan and the Netherlands agreed to limit the transfer of chip manufacturing knowledge to Chinese firms. A number of media outlets, including Bloomberg, the Financial Times, and The New York Times, covered the announcement of the deal.

The curbs are a follow-up to the Biden administration’s announcement of similar restrictions in October 2022 and are meant to impede China’s ability to grow up its own domestic chip manufacturing. The worry is that China would use its newfound access to sophisticated chips to improve its military and AI capabilities.

Bloomberg reports that the finalisation of the “legal arrangements” between Japan and the Netherlands might take months, and that there are currently no plans to publicly disclose the deal.

During a news conference on Friday, Dutch Prime Minister Mark Rutte was questioned about the transaction, and he responded, “This is such a sensitive issue that the Dutch government chooses to communicate cautiously, and that implies that we only talk in a very restricted fashion.”

The limits imposed by the Netherlands have the greatest potential impact on ASML. It’s the sole manufacturer of UV lithography equipment, used to create high-tech semiconductors, and they’re essential. CNBC had previously reported that the business could no longer export its cutting-edge EUV equipment to China, but that it could still send older DUV devices.

If they can’t get their hands on the necessary equipment, they’ll build it themselves.

Bloomberg previously reported that the new limitations would make it more difficult for Chinese businesses to build sophisticated semiconductors and set up manufacturing lines since they would block the sale of “at least some” of these DUV machines. While speaking with CNBC, ASML CEO Peter Wennink said that China accounted for around 15% of the company’s revenues in 2022.

According to Wennink, there is little chance that China won’t develop its own versions of the devices ultimately despite any limitations. If they can’t get such devices elsewhere, “they’ll create them ourselves,” Wennink told Bloomberg. It will take some time, but they will succeed.

Restrictions are likely to have an effect on Nikon and Tokyo Electron in Japan.

The White House has used its influence to increase local chip manufacturing in addition to restricting shipments to China. The $280 billion CHIPS and Science Act was signed into law by Vice President Joe Biden in August of last year, and within that sum was $52 billion in subsidies for the semiconductor industry. Three major chipmakers, Intel, TSMC, and Samsung, are all planning or beginning construction on new facilities in the United States.