As the diplomatic dispute between China and Japan escalates to the extreme, Japan has reportedly unofficially restricted exports of key materials needed for semiconductor manufacturing. The move is seen as an attempt to hit China's semiconductor industry in retaliation after China took countermeasures such as advising its citizens to refrain from visiting Japan. In response to Japan's move, Korea's semiconductor materials industry is reportedly on high alert over the possibility of alternative supplies.
Japan holds more than a 70% share of the market for photoresist, a semiconductor material. Photoresist is a "photosensitive material" whose chemical properties change in response to light. Because it has the property of focusing light to a single spot, it is a key material in the initial "photo process" of semiconductor fabrication. After being applied to a wafer, it focuses the light directed at the wafer onto the targeted points, allowing ultra-fine circuit patterns to be drawn.
According to the industry on the 5th, after reports that Japan restricted exports of photoresist, Chinese semiconductor corporations are said to be reviewing ways to diversify their supply chains. Taiwan's Industrial and Commercial Times said, "Word is spreading in the industry that Japan has halted supplies of photoresist to China," adding, "If raw materials like photoresist cannot be secured, advanced process production lines of major Chinese semiconductor companies such as SMIC and Hua Hong Semiconductor may have to reduce output or completely suspend operations within a month."
As tensions between China and Japan intensify and China takes retaliatory measures such as advising its citizens to refrain from visiting Japan, Japan is seen as countering by restricting exports of key semiconductor materials. The two countries' conflict has been escalating since Sanae Takaichi, Japan's prime minister, made remarks in parliament on the 7th of last month. Takaichi suggested the possibility of Japan's involvement, saying that a Taiwan contingency premised on a U.S.-China armed clash would be seen as a "state survival crisis (for Japan)."
This is not the first time Japan has pulled out the export restriction card amid diplomatic conflict. When diplomatic tensions flared between Korea and Japan in 2019, Japan also imposed export controls on semiconductor materials. As imports of essential materials became difficult, concerns arose that Korean semiconductor corporations such as Samsung Electronics and SK hynix might face disruptions in producing advanced semiconductors.
Lee Geon-jae, a researcher at IBK Securities, said, "Unlike the official export restrictions Japan used in the past to pressure Korea, the reason for unofficially pressuring China's semiconductor industry now appears to be to impose practical sanctions without further inflaming the recently intensifying confrontation between the Chinese and Japanese governments," adding, "If Japan's unofficial export restrictions are prolonged, they will deal a major blow to China's planned semiconductor self-sufficiency drive."
Korean semiconductor materials corporations such as Dongjin Semichem and Soulbrain are said to be closely monitoring the situation. The two corporations achieved localization of materials such as hydrogen fluoride and photoresist, which were subject to Japan's export controls in 2019. A semiconductor materials industry official said, "As Japan's measures become a reality, the possibility of supply from Korean companies is also being reviewed in China," adding, "This is because there is no clear alternative, but we need to watch further to gauge the extent of the benefit."