China’s reliance on chemical in chip-making process rings alarm bells

China’s reliance on Japan for a special chemical used in making chips is causing ripples as Tokyo considers how to respond to the latest update of US export controls against China’s semiconductor industry, experts say.

Chinese investors have been scrambling to buy companies that are able, or have the potential, to produce photoresist that can be substituted for Japanese products even though there has been no official announcement from Japan about restricting photoresist sales to China.

Photoresist is a light-sensitive material used in several processes, such as photolithography and photoengraving, to form a patterned coating on a surface, and is a key input in semiconductor manufacturing.

Jiangsu Nata Optoelectronic Material Co, which develops a type of photoresist, gained 13 per cent to to 34.31 yuan per share, while Crystal Clear Electronic Material Co, which produces ultra-pure materials for Semiconductor Manufacturing International Corp, ChangXin Memory Technologies, and Hua Hong Semiconductor, gained 7.3 per cent since Monday to 17.71 yuan.

Shenzhen Rongda Photosensitive & Technology Co and Shenzhen Tongyi Industry Co, which both specialise in chemicals that can be used in a number of areas including chip manufacturing, both surged 20 per cent on Tuesday.

However, while China has made progress in producing photoresist, it still relies on imports, mainly from Japan, to produce advanced products, according to a chip industry investor, who declined to be named due to the sensitivity of the subject.

“Domestic producers can make photoresist for legacy nodes, but the high-end photoresist is still very difficult to produce locally,” the investor said. He added that Chinese photoresist producers, without access to advanced technology, are forced to engage in low-end investment in areas where there is fierce competition.

Photoresist sales in China amounted to 8.74 billion yuan (US$1.12 billion) in 2020, about a seventh of the global total, but the supply of high-end KrF/ArF semiconductor photoresists is still dominated by Japanese and US businesses, according to a 2020 report released by the ResearchInChina institute.

Four Japanese companies – JSR, Tokyo Ohka Kogyo, Shin-Etsu Chemical and Fujifilm Electronic Materials – have three-quarters of the global market for these high-end photoresists, and a nearly monopoly on extreme ultraviolet lithography (EUV) photoresists, the report said.

According to a November report by brokerage Zheshang Securities, the ratio of local supply in legacy-grade photoresists, such as G-line and I-line, is around 30 per cent. However, this domestic supply ratio drops to 10 per cent for KrF photoresists and less than 2 per cent for high-level Arf and EUV-use photoresists.

The report states it will be difficult for China to catch up because the country lacks key raw materials, such as “photoresist monomer, resin and photosensitizer” as well as testing and verification equipment.

“Although a few domestic enterprises have achieved mass production of some KrF photoresists, their [market] share is very limited,” the report states.

Japan and the Netherlands have agreed to join the US in restricting advanced chip equipment and materials to China, with the Dutch expected to finalise their own export control list by the summer. Although Japan has yet to make a formal decision on photoresists, it has blocked the export of chemicals in the past.

In July 2019, the Japanese government decided to remove South Korea from a whitelist of countries exempt from export controls for certain products as relations between Tokyo and Seoul hit a post-war low.

Japanese businesses had to apply for individual export licences for hydrogen fluoride, photoresist for extreme-ultraviolet lithography, and fluorinated polyimides. This dealt a heavy blow to Korea’s semiconductor industry, and the photoresist for chipmaking proved hard to produce domestically.

The parameters of photoresist materials correspond to the different wavelengths of light sources used in lithography systems, ranging from 365-nanometres for lower-end I-line, to 13.5-nm used in most advanced EUV systems.

For now, few Chinese companies have achieved mass production of ArF and EUV photoresists. Beijing Kempur Microelectronics and Xuzhou B&C Chemical Co are able to to mass produce KrF photoresists. In late 2020, Jiangsu Nata Opto announced that it had “independently developed” an ArF photoresist, but the company was still struggling to realise mass production two years later.

Even with a breakthrough in research and development, it would still take China a long time to achieve mass production of high-end photoresists, according to Xuan Jiyou, a researcher at Beijing-based research institute Kandong.

“For photoresist products, the verification period is long,” said Xuan, referring to the time it takes from producing the materials in a lab to actual testing at chip-making lines. “It generally takes between one and a half years – going very fast – to three years – going very slow – to move from research and development to mass production.” South China Morning Post