Sunday 04 Jun 2023
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(March 9): Shares in Chinese suppliers of materials for semiconductors surged after unsubstantiated reports of impending Japanese export curbs circulated on social media, underscoring the nervousness surrounding US efforts to isolate Beijing’s chip industry.

Shenzhen RongDa Photosensitive Science & Technology Co, supplier of compounds known as photoresists that are essential in chipmaking, soared 20%. That leap, which follows a 20% gain Wednesday, came after several posts on WeChat, which Bloomberg has not verified independently, that an unnamed Japanese company had cut off supplies of the compound.

Japanese companies such as Shin-Etsu Chemical Co, JSR Corp and Tokyo Ohka Kogyo Co are the world’s biggest producers of photoresists. The report comes as US allies including the Netherlands agreed to join the US in restricting the export of advanced chipmaking gear to China, part of Washington’s broader plan to contain a semiconductor sector it’s accused of aiding the military.

The Netherlands, home to chip gear industry linchpin ASML Holding NV, is preparing to rein in exports of so-called immersion DUV lithography products, adding to restrictions that already exist for the most cutting-edge machines. Japan is expected to flesh out its own restrictions too.

“I haven’t seen specific policies from Japan, but not surprised they’ll reveal more details soon,” said Phelix Lee, an analyst at Morningstar. “For now, I expect Japanese restrictions to be tighter than the Dutch but looser than the American ones; partly because Japan is located closer to China.”

The technological conflict between the US and China is funnelling billions of capital — some of it direct from government coffers — into the chip industry as nation states compete to build up domestic semiconductor production. Veteran emerging-markets investor Mark Mobius said on Thursday he is betting big on semiconductor shares that could benefit from that investment.

More fundamentally, chips are growing more sophisticated and demand is expected to skyrocket with the mainstream adoption of future technologies from connected cars and devices to artificial intelligence that will require intense computing power.

The vital nature of chips means nation states are increasingly wielding them as weapons during geopolitical conflict. In 2019, Tokyo restricted the flow of photoresists to South Korea after the two nations became embroiled in a series of diplomatic disputes.

“If an export curb was targeted at leading-edge production, it would be a further obstacle in China’s ambitions to fabricate chips at advanced nodes,” said Robert Lea, an analyst at Bloomberg Intelligence.

Chinese suppliers can’t completely replace Japanese supply in the short term. Government officials have also previously said they want suppliers to chip manufacturers to keep prices stable even if supply from abroad is severely curtailed.

On mainland exchanges on Thursday, Rongda peer Jiangsu Nata Opto-electronic Material Co climbed 2.7%, while Crystal Clear Electronic Material Co rose 0.9%.

“Broadly speaking, a production line can’t be completed if even one type of equipment is completely cut off. So I’m sceptical about how much domestic players can benefit,” Morningstar’s Lee said.

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