China buys fewer chip-making machines as US restrictions start

China’s purchases of machines to make computer chips fell 27% last month from a year earlier as the US imposed new, sweeping sanctions to try and derail the country’s chip ambitions.

Chinese firms imported $2.4 billion worth of machinery used in semiconductor manufacturing last month, the lowest amount in more than two years after Washington broadened restrictions on the sale of the gear to the world’s No. 2 economy.

It’s unclear exactly how much imports were impacted by the sanctions, which were announced early in the month, but October was significantly weaker by value than any other month this year. Chinese purchases from overseas suppliers have fallen in seven of the 10 months for which data has been reported so far in 2022.

Purchases from major exporters such as Japan and the US were down in October, according to Bloomberg analysis of official trade data released Monday. Shipments from the Netherlands doubled in the month. That is where ASML Holding NV, the leading producer of chip-making equipment, is headquartered.

In the past few years, Chinese firms had been rapidly buying more of this equipment as the country seeks to develop its domestic semiconductor industry to be independent of the US.

The new US restrictions only apply to US firms at the moment, and while President Joe Biden’s administration is negotiating with Japan and the Netherlands to try and convince them to limit what can be sold to Chinese firms, Washington doesn’t expect they will agree soon.

China’s Covid Zero restrictions — some of the harshest in the world — have also disrupted production and are now disrupting the making of iPhones and other devices. China is the world’s largest importer of semiconductors, with many of them being assembled into electronics or other goods which are then re-exported.

Despite the curbs, shipments to China of the US equipment to make chips is unlikely to fall to zero. The controls may stop US exports of the most high-tech machinery, but companies are still allowed to sell equipment used to make older, less advanced chips. The US has also granted 1-year exemptions for some foreign manufacturers with fabrication plants, or fabs, in China.

It may also be hard for China to try and ramp up purchases of these goods from non-US suppliers anytime soon. Tokyo Electron Ltd said recently it’s operating at near-full capacity, with months-long wait times for equipment delivery.