🚀 AI-picked stocks soar in May. PRFT is +55%—in just 16 days! Don’t miss June’s top picks.Unlock full list

Analysis-Dutch set to comply with U.S. demands on China exports

Published 07/04/2024, 07:03
Updated 07/04/2024, 07:10
© Reuters. FILE PHOTO: The logo of chip equipment maker ASML is seen at its booth during Semicon China, a trade fair for the semiconductor industry, in Shanghai, China June 29, 2023. REUTERS/Nicoco Chan//File Photo
ASML
-

By Toby Sterling

AMSTERDAM (Reuters) - U.S. demands that chipmaking giant ASML (AS:ASML) stop servicing some equipment it has sold to Chinese customers are a diplomatic and business headache for the Dutch government, but signs are it will continue to align with Washington on export restrictions.

Although Prime Minister Mark Rutte's government is reluctant to make a blanket decision, its public statements and national security interests suggest it will be slow to approve Chinese maintenance requests in future and quick to deny them.

That would be a setback for China's attempts to build up its domestic chip industry, because ASML gear is almost impossible to replace and will break down over time if not maintained.

But it could also complicate efforts by Rutte's government to stop ASML Holdings NV, the Netherlands' biggest company, from moving operations abroad.

One emerging factor is Dutch security priorities, particularly support for Ukraine in its war against Russia.

Rutte, who is favoured to become the next NATO secretary general, discussed ASML with Chinese President Xi Jinping when they met in Beijing last week.

He said afterwards that China's support for Russia was a serious problem at a time when the Netherlands is arming Ukraine with F-16s.

"It is incredibly important that China understand any victory for Russia (in Ukraine) would pose an immediate threat" to both the Netherlands and Europe, Rutte said.

He declined to answer directly whether his government will deny licences for ASML's Chinese customers.

Xi told Chinese state media he had warned Rutte against "decoupling and breaking links" with China.

STARTING POINT

While Beijing says it is neutral on the Ukraine conflict, Xi has a strategic alliance with Russian President Vladimir Putin.

The Netherlands holds Russia responsible for the 2014 downing of Malaysia Flight 17 (MH17) over eastern Ukraine, which killed 198 Dutch citizens. It also houses and supports the Hague-based International Criminal Court which has issued a warrant for Putin's arrest on war crimes charges.

Rutte called on China to do more to keep Russia from obtaining "dual-use goods" with both civilian and military applications - such as ASML's machines and the chips they are used to make.

While his comments do not translate to a policy of presumptive denial for Chinese customers seeking ASML gear that falls under licensing rules, as U.S. policy does, they do indicate the Dutch government's likely starting point.

ASML declined to comment. It has previously said it complies with all export regulations.

European Parliament lawmaker Bart Groothuis said the Netherlands should determine export policy in concert with larger allies.

"It is much better for us to do that, regulate ASML, together with the U.S., or in the future it may be Europe, and I would say that is the best way forward," he said.

U.S. President Joe Biden's export policy chief Alan Estevez is expected to raise the servicing contracts at a meeting on Monday with Dutch government officials and executives from ASML.

The Dutch government must weigh its response given fears of weakening U.S. support for its security priorities, including Ukraine, especially if Donald Trump wins November's presidential election.

CASE BY CASE

"If the U.S. role in NATO decreases, then probably also the leverage that the U.S. has ... with regard to technology transfers to China will decrease," said Frans-Paul van der Putten of the Clingendael Institute, a Dutch think tank.

He said the Dutch see China as "the only country that has at least some kind of influence on Russia potentially".

The Dutch Foreign Ministry, which oversees exports, said on Thursday it will judge Chinese licensing requests the same way it does others: on a "case by case" basis, weighing the risks they might end up having undesired military uses.

But that will be difficult for Dutch officials to determine from afar, especially given Xi's civil-military fusion policies.

For ASML, the damage from an uncertain number of licence denials will be gradual and limited - maintenance is about 20% of its revenue and China is its third-biggest market after Taiwan and South Korea.

It has sold 10 billion euros ($11 billion) of equipment to chipmakers in China over the past three years, much of which does not fall under any export restrictions. Some has also gone to plants in China with Western-allied owners, such as SK Hynix and TSMC.

Individual Chinese chipmakers or plants that are denied a licence could be badly hurt, as ASML machines are essential for making chips and hard to replace.

Experts say, however, that Chinese chipmakers have shown surprising resilience to U.S.-led sanctions so far and will continue to find ways to engineer around them in the future.

"The cutting-off of servicing is going to inexorably degrade the capabilities of that equipment. And so the manufacturer will be fighting a sort of rearguard action to keep those machines going as long as possible," said Paul Triolo, a U.S. expert on China and semiconductors.

© Reuters. FILE PHOTO: The logo of chip equipment maker ASML is seen at its booth during Semicon China, a trade fair for the semiconductor industry, in Shanghai, China June 29, 2023. REUTERS/Nicoco Chan//File Photo

"The question is in the long term, what other workarounds are possible here?"

($1 = 0.9232 euros)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.