China’s Demand for ASML Semiconductor Equipment Grows

China’s goal of becoming more self-reliant in semiconductor production has manifested as imports of foreign-made manufacturing equipment are rising, while purchases of foreign chips have dropped.

On 24 January Dutch computer chip equipment manufacturer ASML announced that its sales to China in 2023 totaled more than €6.4 billion (approximately $6.97 billion), making China its second largest customer (29%) after Taiwan (30%) and ahead of South Korea (24%). Until 2023, China was consistently ASML’s third largest market.

ASML’s 2023 performance in China has been credited to sales of its mid-level Deep Ultraviolet (DUV) lithography equipment. When the US imposed export restrictions in 2019, ASML was not able to sell its most advanced Extreme Ultraviolet (EUV)equipment to China. According to Chinese media reporting, China imported 21 ASML DUVs ($672.5 million) in October 2023 and 16 ASML DUVs ($762.7 million) in November 2023.

• Apart from ASML products, China also accelerated purchases of similar DUVs from Japan, importing $816.8 million worth in November alone. 

Last October the US imposed stricter DUV export controls on China with the intent of closing loopholes in chip export restrictions. The US also reached agreements with the Dutch and Japanese governments to enforce US export restrictions. On 2 January, under US pressure, the Dutch government blocked several shipments of ASML DUVs purchased by China, as Bloomberg reported. ASML said that the Dutch government had revoked its licenses for exporting NXT:2050i and NXT:2100i DUVs, which can be used to make 7nm chips. 

According to ASML CFO Roger Dassen, the new US export control regulations will not allow ASML to obtain export licenses in 2024 for even some older DUVs intended for China. ASML expects that its 2024 sales of mid-level DUVs to China may drop 10% to 15%, but China’s demand for low-end equipment will remain solid as China’s chip demand continues to rise. 

The Chinese government protested the new US export control restrictions, calling it “hegemonic and bullying behavior.” China urged the Dutch government “to be impartial, respect market principles and the law, take practical actions to protect the common interests of both countries and their companies, and maintain the stability of the international supply chain.” 

• Pamir judges that China most likely has few available options for influencing the Netherlands, hence Beijing has not threatened trade barriers or similar reprisals.

According to Chinese industrial experts, more than 95% of Chinese DUVs used in chip-making are foreign made. Under US restrictions, the Chinese government has made it a top priority to develop domestic chip-making equipment. In addition to DUV and EUV, Chinese scientists are working on new approaches to chip making. In December Chinese media reported that electronics giant Huawei had developed Nano-Imprint Lithography (NIL) equipment that can produce 10nm chips. In October 2023, Canon of Japan declared its own success with NIL equipment, noting that the development took 15 years.

International industry experts worry that China’s significant imports of chip-making equipment and its production of low-end chips will ultimately flood the international market, dramatically lower prices, and curb the competition, as happened with solar panels. On the other hand, Chinese industry experts say China’s increased chip-making capacity is for domestic consumption and self-reliance in the face of international sanctions. According to China Customs, Chinese imports of chips in 2023 dropped 15.4% from 2022.