The Biden Administration implemented export control measures on China, restricting China's access to US semiconductor technologies, advanced chips, and the software and equipment to produce them. Japan and Netherlands followed US footsteps in 2023, announcing their plan to issue licensing requirements to export advanced chipmaking equipment. This tripartite coordination is significant as the US, Japan, and the Netherlands are the largest manufacturers of sophisticated wafer fabrication equipment (WFE). Without them, China cannot produce advanced chips for the development of AI and 5G. As a result, China filed a complaint with WTO against the US for violating trade agreements and asked local companies to stop purchasing Micron chips. The Chinese central and local governments increased their investment in the domestic semiconductor industry. A key question that experts are concerned with is whether China can develop its indigenous original equipment manufacturers (OEMs).

China the Latecomer

• Top WFE equipment manufacturers have over 40 years of experience, but China only started its semiconductor research program in 2006.
• China formulated industrial policies to achieve self-sufficiency in integrated circuits. However, only a small amount was directed to semiconductor capital equipment makers, while foundries and IDMS received most of the investment. Local fabrication equipment makers did not benefit much as Chinese chipmakers imported their equipment mostly.
• China has a technological disadvantage compared to its overseas rivals. Foreign firms are also far larger and more experienced; therefore, they can maintain and expand their technological edge.
• International OEMs have deep and broad subsystem and component suppliers networks crucial for advanced chipmaking tools. China has yet to develop such an ecosystem.
• Due to the low adoption of indigenous OEMs and lack of experience, companies are reluctant to use them. China faces difficulty developing advanced tools and cannot meet the technological gap.