These three Chinese retaliations which threaten the EU after the cessation of exports of ASML chip manufacturing machines to China

2024-01-03 17:07:00

The Netherlands has chosen its side, and it is not that of China. The Dutch government recently revoked a license from its giant ASML to ship its photolithography machines to Beijing to produce cutting-edge chips, the real brains of our electronic devices. Entering into force on January 1, this decision was however taken several months ago in the context of an alliance between the Netherlands, the United States and Japan.

This is also the second restriction imposed on ASML since the latter was already prohibited from selling its production machines using extreme ultraviolet radiation – of which he is the only one to master their design – in Beijing. With these measures, the United States wishes “limit China’s technological development in a context of rising geopolitical tensions”explains to The TribuneEstelle Prin, founder of the European Semiconductor Observatory.

One thing is certain, this new announcement has not eased tensions. On Tuesday, Foreign Ministry spokesperson Wang Wenbin lambasted what he called “ bullying behavior » from Washington. Such action “seriously violates international trade rules”he denounced before warning that the United States “ would inevitably suffer the consequences of their own actions “. But, even though “this agreement was signed in a very opaque manner between the United States and the Netherlands, without consulting Europe”, reminds The Tribune Elvire Fabry, China specialist at the Jacques Delors Institute, the 27 might well bear the brunt of the countermeasures of the former Middle Kingdom.

Chinese countermeasures once morest ASML?

The fears primarily relate to ASML, which finds itself in the middle of the Sino-American battle. Indeed, mainland China is the European manufacturer’s third market following Taiwan and South Korea, and even became its first market in the third quarter, representing 46% of its turnover. Dutch exports to China continue to rise. In October, they increased by another 29.5%, according to official figures cited by the South China Morning Post. « The Chinese government is investing huge amounts to develop the semiconductor industry, in particular by creating new factories, which explains the strong demand for machines by Beijing », Specifies the founder of the European Semiconductor Observatory. A sanctions boycott by China on the manufacturer’s machines might therefore have a strong impact on the latter’s activity.

However, the group assures that these export restrictions should not have “ material impact » on its financial outlook.

Because, in reality, “ Last year, China anticipated this ban and therefore decided to stockpile and purchase a large number of machines, which explains its high share in ASML’s revenue in 2023 », points out Estelle Prin.

A cyclical overexposure therefore, which should naturally fade in 2024 by reducing the giant’s dependence on Beijing.

A risk for the European semiconductor industry

A step further, Beijing might decide to sanction all or some of the European chip producers, as has already been done with the American Micron. In May 2023, the cybersecurity body called on Chinese companies working with sensitive data to stop buying its chips. A ban which is confined to infrastructure operators known as “ sensitive » (i.e. to all large Chinese companies) but which might extend to all companies. Ultimately, Micron risks losing big given that it generates 10.8% of its turnover in mainland China and 5% in Hong Kong. Aware that the exposure of European manufacturers to the Chinese market is even greater (29% of Infineon’s turnover and 23% of that of STMicroelectronics), Beijing might decide to reiterate its sanction once morest the latter.

Battle in the semiconductor market: China strikes a blow by banning Micron

A decision which, however, is unlikely to see the light of day according to the European Semiconductor Observatory. “ LChinese foundries ont such a need for chips that it is not certain that it can do without ASML in the short term », Says its founder, specifying that the country imports 90% of the semiconductors it needs. Proof of Beijing’s dependence on European manufacturers, in June, the French Stmicroelectronics signed an agreement with its Chinese counterpart Sanan Optoelectronics to create a new joint venture manufacturing components in Chongqing in China, aiming to start production in the fourth quarter 2025.

Strategic metals at the heart of Chinese sanctions

Another threat, however, seems much more plausible: a Chinese embargo on its strategic metals.

Strategic metals: Europe trembles, China threatens to curb its exports

This summer, Beijing has already conditioned the approval of the central government for the export of two strategic metals (gallium and germanium), essential for the production of batteries, solar panels and other electronic devices. Even more worrying, at the end of December, Beijing announced that it would stop the export of a series of technologies linked to the extraction of rare earths, a set of 17 elements used in cutting-edge technological products.

« This is clearly a Chinese countermeasure in a strategic sector for the European green transition », analyzes Elvire Fabry.

If exports of Chinese strategic metals were stopped, Europe would find itself with a real thorn in its side since the former Middle Kingdom refines 90% of the world’s graphite production, and produces 80% of gallium and carbon. germanium and more than 60% of rare earths.

READ OUR SPECIAL REPORT HERE “STRATEGIC METALS, NERVE OF THE ENERGY TRANSITION WAR”

If Australia and the United States might replace China since they respectively produce 8% and 15% of rare earths globally, according to the United States Geological Survey (USGS), European dependence to his allies might harm him. “In the event of a Chinese embargo on rare earths, there will, of course, be some friction, because American and Australian mines, or others, will have to increase their production capacities which will take a little time. Europeans will probably be served following the producing countries and might, as a result, run out of these metals in the short term. explained François Candelon, world director of the BCG Henderson Institute, expert on China, to The Tribune, this summer. Enough to worry the European Commission, which announced in July that it was preparing an analysis on the dependence of European industry on China.