For the third consecutive quarter, half of Japan’s chip-making equipment is exported to China.

Despite efforts by the Japanese government to limit the export of lithographic equipment to China at the behest of allies in the U.S. and the Netherlands, the bulk of Japanese exports on this front are not restricted by sanctions. Consequently, equipment shipments for chip manufacturing from Japan to China have already outpaced 50% for the third consecutive quarter.

The results of Q1 of this year, noted by Nikkei Asian Review, only affirm this trend. Nearly half of the equipment for producing chips and LCD panels, plus its components, were shipped from Japan to China in the first quarter of this year. The monetary value of exports to China surged by 82%, reaching $3.32 billion – the highest value since 2007, according to Japanese government statistics.

Since July, Japanese authorities have started requesting exporters possess special licenses for shipping equipment to manufacture chips using 14-nanometer technology and stricter norms, but the spectrum of dispatched equipment from local manufacturers is broad and is partially covered by these constraints. Chinese statistics suggest that, in September of last year, local chip manufacturers imported chip production equipment worth $5.2 billion – a 1.5-fold increase from the previous year. The share of these shipments from Japan and the Netherlands also saw an increase.

Starting this year, China has been importing approximately $4 billion worth of chip manufacturing equipment monthly, gradually augmenting its purchases. Experts believe Chinese manufacturers, due to a lack of access to advanced foreign technologies, are switching production to more mature chips but continue to ramp up production volumes. Meanwhile, the global semiconductor market is nearing a new growth cycle projected to last between three and four years. The slump in chip demand, brought on by the pandemic in the latter half of 2022, is predicted to reach its nadir this year, after which demand will begin to recover. Last quarter, Japanese exports of chip manufacturing equipment grew by 13% overall, marking the first positive trend in production in the last five quarters.