The Netherlands, Japan reportedly to join U.S. in restricting chip equipments export to China

Editor's Note: There were a lot of talks about China this week in Brussels and Washington. In Brussels, the European Commission has launched a fellowship programme to "bring worldwide expertise on China," while in Washington, Dutch and Japanese officials are reportedly close to agreeing to join the U.S. in restricting semiconductor manufacturing equipments export to China. The CCCEU Weekly Update keeps you up to date on China-EU dynamics. Enjoy reading and have a lovely weekend.

Chip War

Wennink, ASML Holding NV's Chief Financial Officer and Executive Vice President, stated on Wednesday that US-led export control measures against China could eventually push China to successfully develop its own technology in advanced chipmaking machines.

In the previous two weeks, Japanese Prime Minister Fumio Kishida and Dutch Prime Minister Rutte both visited the United States to discuss issues such as limiting chip exports to China.

Regarding the US-Japan talks, White House Indo-Pacific coordinator Kurt Campbell stated that the two sides' discussions were extremely fruitful. Although the Japanese ambassador to the US, Koji Tomita, stated that "this is a complex issue that requires coordination with the industry," "both sides expect to make solid progress in the coming weeks."

However, the Dutch position on this issue is still unclear and requires further investigation. Liesje Schreinemacher, the Dutch Minister for Foreign Trade and Development Cooperation, stated on January 15 that his country "will not summarily agree" to US rules on China's export of chip manufacturing technology, and that his country will work hard for trade liberalisation and oppose protectionism.

Following the meeting with US President Biden, Dutch Prime Minister Rutte stated that the discussion had progressed gradually, adding that while it was critical for Western countries not to lose their leadership in advanced semiconductor technologies, global supply chains for simpler technologies should not be disrupted by export restrictions.

All eyes are now on the talks in Washington. According to Bloomberg, Japan and the Netherlands are planning to join the United States in limiting China's access to advanced semiconductor machinery, forging a powerful alliance that will undercut Beijing's ambitions to build its own domestic chip capabilities. US, Dutch, and Japanese officials are expected to conclude talks on a new set of limits on what can be supplied to Chinese companies as soon as Friday, the US time.

The United States imposed new export control regulations on advanced computing and semiconductor manufacturing to China last October and has since upgraded sanctions on China's semiconductor industry. The new export control regulations restrict American enterprises from exporting key chip manufacturing tools to China, as well as restricting American citizens and businesses from providing any direct or indirect support to Chinese semiconductor manufacturers. The United States not only engaged in technology blockade, but also attempted to exert pressure on Japan and the Netherlands to halt the flow of advanced chip technology to China and form a chip blockade alliance against China.

The important reason why Washington has spared no effort to exert pressure on the Netherlands is that lithography machines are key manufacturing tools for chips, as highlighted by the United States' new export control regulations. ASML, based in the Netherlands, is one of the few companies in the world capable of producing high-end lithography machines in batches, accounting for more than 60% of the lithography machine market share.

Despite US pressure, the Netherlands suspended the export of newly manufactured EUV lithography machines to China in 2019 and 2020 and cancelled the export licence; however, ASML continued to export old DUV lithography machines to China and provided after-sales services for the lithography machines already purchased by China under the contract. In 2022, sales to China accounted for 14% of the total global revenue.

It sowed discontent in the United States. If ASML continues to export lithography machines to China, expectations for US chip export control to China will be difficult to meet. If the Netherlands accepts the United States' proposed export restrictions to China, ASML's revenue will almost certainly suffer.

Following the United States in imposing the most severe sanctions will undoubtedly have an impact on the Netherlands' high-tech industry, which is led by lithography. Once China has achieved a technological breakthrough in the manufacturing of medium-high-end lithography machines, the absolute competitive advantage of Dutch related industries will be difficult to maintain.

Even in mature fields such as autopilot and the Internet of Things, which are widely used in low-end chips, China has a thriving market demand, which ASML hopes to continue to seize. Furthermore, the production of lithography machines is dependent on the global industrial chain. The chip sanctions imposed by the US on China will have an impact on the upstream industries of allies, attracting even more criticism.

It is worth noting that Japan is also suffering as the result of the US chip sanctions. In the 1980s, Japan's prosperous semiconductor industry suffered as a result of US sanctions. The US launched the 301 investigation first and then passed the Japan-US Semiconductor Agreement, which required Japan to increase imports of semiconductor products from the US while decreasing exports to the US, slowing the pace of further upgrading the technology of the Japanese semiconductor industry. Japan is now willing to stand in the same camp as the US and swing the big stick of chip sanctions at China.

In response, China's Ministry of Foreign Affairs spokesman stated in November last year that the US abused its national power and used its technological advantages to coerce its allies in order to maintain its own hegemony and private interests. He hoped that the parties involved would maintain an objective and impartial stance and make independent and correct decisions based on their own long-term interests as well as the fundamental interests of the international community.

Ambassador Fu presents credentials 

Ambassador Fu Cong, Head of the Chinese Mission to the EU, has said that Beijing is committed to cooperation and dialogue with Brussels. He made the remarks while presenting his credentials to European Commission President Ursula von der Leyen on Thursday, according to a statement by the Chinese diplomatic mission to the EU.

Commission launches fellowship programme on China

The European Commission on Wednesday set up a Fellowship Programme on China that aims to foster strategic cooperation with think tanks and universities on China-related issues. The goal is to tap into deep expertise on China from Europe and beyond,  and expand the knowledge base on China within the Commission.

The fellowships will be established in IDEA, the European Commission's in-house advisory body set up by the president to provide ideas and inspiration for core priorities, including geopolitics. The Fellowships will group policy-oriented academics from world-class think tanks and universities who are specialised in political, social, economic, digital, environmental, climate, security, and/or historical issues related to China.

The fellowships will have a fluid structure, with fellows joining for a period of 6–12 months to bring specific expertise. The fellows will be selected solely based on their renown, competence, and expertise. The fellowships will be paid, and a maximum of 15 fellowships will be offered for each period.

EU announces 70 planned projects

The European Union is finally concretely launching a new initiative called Global Gateway, which aims to provide an alternative to China's Belt and Road Initiative. The Global Gateway is a collection of infrastructure projects that the EU is prioritizing this year, with the goal of mobilizing up to €300 billion in public and private funds by 2027 to finance EU infrastructure projects abroad.

The first projects of the EU's Global Gateway include a digital cable under the Black Sea, a submarine optical fibre cable to connect Mediterranean and Northern African countries, and a dam and hydroelectric plant in Cameroon. These projects are part of the 70 projects that the EU is prioritising this year under the Global Gateway.

EU lawmakers back "prohibitive" capital rules for crypto assets

European Union lawmakers have voted to impose strict capital requirements on banks that hold cryptocurrencies, per a Reuters article.

European Union lawmakers backed a draft law on Tuesday to implement the final leg of post-financial global bank capital rules, adding "prohibitive" requirements to cover risks from crypto assets.

To "prevent instability in the crypto world from spilling over into the financial system," Markus Ferber, economic spokesperson for the EU parliament's European People's Party, says, "banks will be required to hold a euro of own capital for every euro they hold in crypto."

The Netherlands opposes new EU money to counter US green subsidies

According to the Financial Times, the Dutch prime minister said he will oppose any fresh EU money being raised to fund Europe's response to Joe Biden's Inflation Reduction Act (IRA), arguing the union already has ample cash to support its green transition.

Mark Rutte said he saw no need for the bloc to raise new debt to supply grants or loans to countries seeking to invest public money in green technologies, urging member states to fully tap existing pots of EU funding instead.

Recent increases in the European Commission's cost of borrowing added to the arguments for capitals to do their own fundraising rather than turning to Brussels, he added.

Turkey postpones NATO talks with Sweden, Finland

On Tuesday, Turkey postponed NATO accession talks with Sweden and Finland, further denting the Nordic neighbours' hopes of joining the Western defence alliance. The decision further diminished the chances of the two countries joining NATO before Turkey's May presidential and parliamentary elections.

Global growth forecast to slow to 1.9% in 2023, warn UN economists

Senior UN economists warned on Wednesday that intersecting crises are likely to add further damage to the global economy, with growth set to slow from three percent in 2022 to 1.9 percent this year.

"In most countries, we expect that private consumption and investment will weaken due to inflation and higher interest rates,"  said Ingo Pitterle, Senior Economist at the UN Department of Economic and Social Affairs (UNDESA). "Several countries will see a mild recession before growth is forecast to pick up in the second half of this year and into 2024."

The findings come amid the backdrop of the pandemic, the situation in Ukraine, and the resulting food and energy crises, surging inflation, debt tightening, as well as the climate emergency.

What are experts talking about?

"Europe is divided over NATO's 'double transformation'", published by the Institute of European Studies of the Chinese Academy of Social Sciences (CASS) and written by Liu Zuoku, mentions that the recent signing of the EU-NATO joint declaration 2023 reveals the bias and arrogance in the perception of China. The author points out that NATO has targeted China and that the US has never given up on the implementation of this strategic objective. As the Russia-Ukraine conflict continues, the rift between some European countries and the US is growing, with mutual dissatisfaction deepening around energy price issues, the Inflation Reduction Act, and other focal issues. The growing dissatisfaction of some European countries with the US "beggar-thy-neighbor" approach and the increased emphasis on European interests have also pushed the EU and many European countries to emphasise the need for dialogue with China to properly resolve differences.

"Europe must fight energy poverty more effectively" was published by the European Policy Centre. The authors are Philipp Lausberg and Tijn Croon. The article points out that European countries have announced comprehensive support packages to mitigate the impact of high energy prices on their economies. It is now necessary to adopt a more targeted approach to helping those most in need. The authors stressed that addressing this disparity should be a top priority for governments across Europe. To effectively combat the climate crisis and cope with threats from Russia, it is key to distribute burdens justly. Relief measures for households in need will be crucial to preserving social cohesion while also maintaining support for sanctions against Russia and the green transition. The rationale should be to guarantee a right to energy for all, while also providing incentives for energy conservation to alleviate pressure on energy prices and supply.

Please note: the English version of this issue is slightly different from our Chinese one. The views and opinions expressed in this article do not necessarily reflect the official position of the CCCEU.