# Analysis-As Japan aligns with U.S. chip curbs on China, some in Tokyo feel uneasy
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-07-24
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Japan Worried About U.S. Chip Curbs on China, Analysis Shows
Meta Description: How Japan's alignment with U.S. chip curbs on China may impact coordination with Beijing, as concerns arise over potential impacts on businesses and
URL: https://financedigest.com/analysis-as-japan-aligns-with-u-s-chip-curbs-on-china-some-in-tokyo-feel-uneasyhtml

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# Analysis-As Japan aligns with U.S. chip curbs on China, some in Tokyo feel uneasy

By Tim Kelly, Karen Freifeld and Kentaro Sugiyama

TOKYO/NEW YORK (Reuters) – Japan’s imposition of export controls on chip making tools to align with a U.S. policy restricting [China’s ability to produce advanced semiconductors is worrying](https://www.financedigest.com/oil-prices-wobble-on-worries-over-china-economy-us-rate-path.html "Oil prices wobble on worries over China economy, US rate path") some officials in Tokyo who believe a combative U.S. approach may hamper coordination and needlessly provoke Beijing.

From this week, Japan is restricting 23 types of equipment, ranging from machines that deposit films on silicon wafers to devices that etch out the microscopic circuits of chips that could have military uses.

But, while the U.S. referenced China 20 times in its October announcement targeting Chinese companies, Japan has chosen broad [equipment controls](https://www.financedigest.com/air-traffic-control-equipment-market-growth-restrains-and-opportunities-2021-2028.html "Air Traffic Control Equipment Market Growth, Restrains And Opportunities 2021-2028") not specifically aimed at its bigger neighbour.

“We feel an odd discomfort with how the U.S. is doing this. There’s no need to identify the country, all you need to do is control the item,” a Japanese industry ministry official told [Reuters](https://www.financedigest.com/japans-economy-likely-shrank-in-q3-on-weak-consumption-output-reuters-poll.html "Japan’s economy likely shrank in Q3 on weak consumption, output – Reuters poll"). Japan can’t [sanction countries unless they are involved in a conflict](https://www.financedigest.com/france-says-belarus-could-face-more-sanctions-if-it-gets-increasingly-involved-in-ukraine-conflict.html "France says Belarus could face more sanctions if it gets increasingly involved in Ukraine conflict"), the source added.

[Japan’s trade and industry minister told reporters when announcing Japan’s measure in March that China was only one of 160 countries and regions that would be subject to controls and that Japan’s rules](https://www.financedigest.com/japans-ruling-party-is-set-for-likely-bruising-in-weekend-election.html "Japan’s ruling party is set for likely bruising in weekend election") were not meant to follow the U.S.

Even so, [China has warned](https://www.financedigest.com/shares-mixed-on-fed-warning-china-acts-on-property.html "Shares mixed on Fed warning, China acts on property") Japan to backdown.

Tokyo and Washington [share concerns about China’s](https://www.financedigest.com/world-shares-rally-as-china-offers-markets-a-hand.html "World shares rally as China offers markets a hand") push for advanced technologies and in May agreed with other Group of Seven industrial democracies on “de-risking” from potential Chinese economic coercion.

However, differences in chip making [equipment controls could test](https://www.financedigest.com/the-alcohol-breathalyzer-drug-testing-equipment-market-to-stay-innovatively-persistent.html "The Alcohol Breathalyzer Drug Testing Equipment Market to stay innovatively persistent") that unity, should either gain a competitive advantage over the other by allowing exports the other blocked.

“Each country is responsible for its own licensing policies, and on top of that it’s up to each country to enforce the licensing decisions that it undertakes,” said Emily Benson, the director of the trade and technology project at the bipartisan nonprofit Center for Strategic and International Studies in Washington.

Japan is not applying a U.S. standard of presumption of denial and will allow exports whenever possible, a second Japanese government official said. The Japanese government [sources asked](https://www.financedigest.com/exclusive-u-s-asks-japan-china-others-to-consider-tapping-oil-reserves-sources.html "Exclusive-U.S. asks Japan, China, others to consider tapping oil reserves -sources") to remain anonymous because of the sensitivity of the issue.

There may also be underlying tensions because unlike Japan and the Netherlands, which will implement controls starting September, the U.S. is not limiting restrictions to specific tools.

“The U.S. [rules still restrict](https://www.financedigest.com/eu-to-restrict-travel-rules-for-russians-split-on-how-far-to-go.html "EU to restrict travel rules for Russians, split on how far to go") other items and services the others do not,” said Washington trade lawyer Kevin Wolf.

Reuters contacted six [chip tool makers](https://www.financedigest.com/u-s-considers-crackdown-on-memory-chip-makers-in-china.html "U.S. considers crackdown on memory chip makers in China") in Japan. Two of them, deposition machinery maker Kokusai Electric and [Japan’s leading chip tool maker Tokyo](https://www.financedigest.com/chinese-envoy-to-japan-calls-on-tokyo-for-support-of-beijing-olympics.html "Chinese envoy to Japan: calls on Tokyo for support of Beijing Olympics") Electron, said they expect Japan’s controls to have a limited business impact.

Chip [tester company](https://www.financedigest.com/microsoft-videogame-testers-form-companys-first-u-s-union.html "Microsoft videogame testers form company’s first U.S. union") Advantest Corp said none of its products are affected.

Lithography machine makers Nikon Corp and Canon Inc, and wafer cleaner manufacturer Screen Holdings did not respond.

## COORDINATION

Dovetailing Japan’s controls with those of the U.S. and the Netherlands will require close coordination.

“The issue in all these things is, what is it you can let go safely and what do you need to block. Everyone [draws the line](https://www.financedigest.com/poverty-education-levels-draw-battle-lines-in-french-election.html "Poverty, education levels draw battle lines in French election") a little bit differently,” said Jim Lewis, a former U.S. State Department and Commerce Department official, and a researcher at the Center for Strategic and International Studies (CSIS). He has met with Japanese trade officials and believes Tokyo is committed to [curbing certain exports](https://www.financedigest.com/exclusive-biden-to-hit-china-with-broader-curbs-on-u-s-chip-and-tool-exports.html "Exclusive: Biden to hit China with broader curbs on U.S. chip and tool exports").

Tokyo, Amsterdam and Washington have all indicated they would like chip tools added to a list of weapons, dual-use goods and technologies controlled by the 42 nations that are party to the Wassenaar Arrangement established after the Cold War.

They are unlikely, however, to win the unanimous backing they need from its members.

“The Wassenaar arrangement is next to hopeless because Russia’s a member,” said Lewis. “You’re never going to start by getting universal consensus. So, pick the guys who care and get them to [work together.”](https://www.financedigest.com/intel-ericsson-to-work-together-on-custom-5g-chip.html "Intel, Ericsson to work together on custom 5G chip")

The alternative is to form a closer group with the U.S. and the Netherlands to oversee [chip manufacturing](https://www.financedigest.com/samsung-micron-warn-chinas-xian-lockdown-could-disrupt-memory-chip-manufacturing.html "Samsung, Micron warn China’s Xian lockdown could disrupt memory chip manufacturing") tools that could eventually include other countries, the first Japanese industry ministry official said.

The U.S. Commerce Department and [Dutch government](https://www.financedigest.com/internet-data-growth-has-not-pushed-up-telcos-network-costs-dutch-government-says.html "Internet data growth has not pushed up telcos’ network costs, Dutch government says") declined to comment. The White House did not respond to a request for comment.

## BROADER RESTRICTIONS

In the meantime, U.S. [President Joe Biden’s](https://www.financedigest.com/biden-arrives-in-south-korea-for-talks-with-president-yoon.html "Biden arrives in South Korea for talks with President Yoon") administrationis expected to update its October rules, in part to align with the broader Japanese tool list.

It could also go further than the Netherlands in limiting what Dutch lithography manufacturer ASML can supply to certain Chinese plants, [Reuters exclusively reported last month](https://www.financedigest.com/naturgys-profit-rises-on-lng-gains-soothing-shareholders-by-pietro-lombardi-madrid-reuters-spanish-power-utility-naturgy-reported-on-monday-an-88-jump-in-profit-for-the-first-six-months-of.html "Naturgy’s profit rises on LNG gains, soothing shareholders By Pietro Lombardi MADRID (Reuters) – Spanish power utility Naturgy reported on Monday an 88% jump in profit for the first six months of the year, boosted by strong earnings at its liquefied natural gas (LNG) business, which could help it to win over restive investors. Earlier this month, the company said it would increase its dividend floor through 2025 while trimming expected investment, as it sought to make rewarding shareholders a priority. Pleasing them has become a focus as Naturgy considers changes that could reshape the company and after arguments over the potential appointment of a chief executive. Naturgy’s first-half net profit jumped to 1.05 billion euros (.16 billion), boosted by its liquefied natural gas (LNG) business. Shares were down 0.2% in mid-morning trading, bucking deeper declines, in particular for Spain’s blue-chip banks and utilities after a general election on Sunday produced no clear winner. Renta 4 Banco analyst Angel Perez Llamazares said Naturgy performed better than expected, adding “cash flows also beat our expectation,” and debt fell more than expected. After natural gas prices hit record levels last year, Naturgy said a fall in procurement costs this year and hedging gains had boosed profits. In the first half of the year, the company “exceeded the objectives of operating efficiency, cash generation, investment materialisation and debt reduction,” Executive Chairman and CEO Francisco Reynes said. After rival Iberdrola named a separate CEO last year, Naturgy is the only large energy company in Spain to combine the roles of executive chairman and CEO. Earlier this month, the company raised the dividend floor to 1.40 euros a share, from 1.20 euros. Operating profit (earnings before interest, tax, depreciation and amortisation) is expected to reach 5.1 billion euros, compared with a previous guidance of 4.8 billion euros. It said it was targeting net profit of 1.8 billion euros in 2025. Naturgy also relaunched its plan to split regulated infrastructure operations and liberalised energy businesses into two listed companies. The project had been suspended after the Ukraine war disrupted energy markets and analysts are still sceptical. “We believe it is unlikely that Naturgy will be able to implement its asset split in the short term and it is also unlikely that a big change in the shareholding of the company would occur,” said RBC analyst Fernando Garcia. ( = 0.8986 euros) (Reporting by Pietro Lombardi, editing by Inti Landauro and Barbara Lewis)"). The U.S. can regulate ASML directly as its equipment includes U.S. parts. At the time, [sources expected](https://www.financedigest.com/exclusive-german-govt-expects-inflation-to-surge-to-2-9-in-2021-source.html "Exclusive-German govt expects inflation to surge to 2.9% in 2021 – source") the updates in July, but that now appears unlikely.

“Part of the reason it’s taking so long is that the U.S. is still [talking to Japan](https://www.financedigest.com/south-korea-seeks-to-kickstart-talks-to-resolve-historical-feuds-with-japan.html "South Korea seeks to kickstart talks to resolve historical feuds with Japan"). They need to make sure that if they block anything, that they similarly block it in [Japan,” said a source](https://www.financedigest.com/brazil-to-resume-visa-requirements-for-us-japan-australia-canada-sources.html "Brazil to resume visa requirements for US, Japan, Australia, Canada -sources") familiar with the discussion.

Tokyo remains worried that targeting China will provoke damaging retaliation, such as a ban on Japanese [electric cars](https://www.financedigest.com/volkswagen-boosts-electric-car-investment-in-spain-to-10-billion-euros.html "Volkswagen boosts electric car investment in Spain to 10 billion euros"), a third Japanese industry official said.

“What advantage is there to making someone lose face, unless that is your objective.”

(Reporting by Tim Kelly Karen Freifeld, Kentaro Sugiyama; additional reporting by Toby Sterling and Yoshifumi Takemoto; Editing by Lincoln Feast)


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