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By STUART LAU
with PHELIM KINE
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GOOD MORNING. And Happy Independence Day to our American readers! This is Stuart Lau reporting from a very quiet Brussels this Tuesday, with Phelim Kine in the D.C. hot seat, back from his vacay. With Vladimir Putin and Barbie wrestling for our attention this week, let’s begin our coverage with all the latest in the U.S.-Dutch v China trade war. (Don’t worry, we’ll get to Barbie and the territorial disputes in the South China Sea at the bottom of today’s newsletter.)
DUTCH TECH BAN WIDENS
TECH BATTLE GATHERS PACE: In lockstep with Washington and Tokyo, the Dutch government led by Mark Rutte on Friday announced new details of a widened export control regime targeting microchip technologies that could be used to accelerate China’s military build-up. This came on the same day that the EU’s 27 leaders collectively endorsed the new strategy of “de-risking,” with a view to reduce economic over-reliance on Washington’s arch-rival. On Monday, Beijing hit back with a new export control rule for two types of minerals used in microchip manufacturing — germanium and gallium — prompting a senior EU lawmaker to call for speedier efforts to move away from EU dependency on China.
Tell us what you sell, ASML: Under the new rules from The Hague, Europe’s biggest tech firm ASML, a Dutch company, will have to seek export licenses for some of its more advanced microchip printing machines to China from September, POLITICO’s Pieter Haeck writes in to report.
No turning back now: "We've taken a really close look and we worked as precisely as possible," Dutch Foreign Trade Minister Liesje Schreinemacher said in a statement. "We can tackle the most important vulnerabilities without an unnecessary disturbance of the global production of chips."
ASML … and ASM: The ban appears to be a surprise to some industry insiders, as Schreinemacher’s announcement went further than the earlier Dutch decision in March that only affected ASML, according to Rem Korteweg, senior fellow at Clingendael Institute, a Dutch think tank.
“From ASML’s perspective, it’s nothing new as opposed to what they anticipated in March,” Korteweg said. “What is new is that the export control regime is broader than just covering ASML’s lithography machines,” as it also targets atomic layer deposition and epitaxy procedures, essentially affecting another company, ASM. (ASM says it doesn’t expect much impact, as per Reuters.)
Bye China, hello world: The new regulation will have “a certain chilling effect on the ability to sell that equipment to China,” Korteweg said. But he noted: “Because of the proliferation of all these chips initiatives across the world, I don’t think ASML is necessarily going to sell any machine less — just [to] different customers.”
Dealing a blow to China’s grand plan: China has wanted to build up its own microchip capabilities in order to compete with the West, as well as Taiwan, which leads in the field. The new rules imposed by the Netherlands, the U.S. and Japan will have an “extremely impactful” effect on that goal, says Martijn Rasser, managing director of Datenna, a consultancy firm. “In order to successfully indigenize cutting-edge semiconductor fabrication, not having access to these machines is a huge setback for Beijing’s visions in the space. There’s no question about that.”
Complaint corner: “Over the past several months, China and the Netherlands had had multi-level, high-frequency negotiations on semiconductor export control, but the Netherlands still imposed these measures,” a spokesperson from the Chinese Ministry of Commerce said. “We urge the Dutch side to … respect the market principle and the spirit of contract [and] not to abuse export control measures.”
Dutch observers note that Beijing hasn’t started retaliating against Dutch businesses yet — but officials remain cautious that there’s such a possibility further down the road. Watch this space, anti-coercion geeks.
BEIJING UPS THE CHIP GAME, TOO
NO MACHINES FOR US? WATCH OUT FOR YOUR MATERIALS: In an apparently well-timed tit-for-tat, the Chinese Ministry of Commerce and the General Administration of Customs issued a joint statement on Monday announcing a new regulation on exports of two critical minerals, with effect from August 1. “In order to safeguard national security and interests, with the approval of the State Council, it is decided to implement export controls on items related to gallium and germanium,” it said.
What are they used for? Germanium is used in fiber optics, semiconductors and solar panels, while gallium is used to produce chipsets used in computer, mobile phones, as well as 5G base stations. In short: The kind of stuff that the EU’s digital and green transitions require.
State media spin: China Daily calls the mineral export control “just and righteous“: “China needs to regulate its own mineral industry so as to develop it in a healthier way, instead of polluting itself only for the world’s biggest mine holder to save it as a ‘strategic resource’.” The Global Times explicitly links the export control to the Dutch ban. (An EU diplomat said he’s surprised by China’s “honesty”: “Best gift for EU hawks.”)
Time to buy it from somewhere else: “This is a lot of bark and no bite,” said Rasser, from Datenna. “Ultimately, silicon is by far the predominant material for semiconductors. Yes, gallium and germanium can be important for certain types of chips. But if Beijing were to seriously constrict these critical minerals, they’re just going to accelerate the diversification of the global supply chain, just like we’re seeing with rare earths.”
EU TOP LAWMAKER WARNING: “[Yesterday’s] decision by China to ban the export of gallium and germanium clearly shows that the Communist Party will put on its economic boxing gloves sooner rather than later,” Nicola Beer, a vice-president of the European Parliament and the lawmaker in charge of the Critical Raw Materials Act portfolio, told China Watcher. “It is obvious that a new approach to managing economic and political risks vis-Ã -vis China is needed. Whether ‘de-risking’ turns into ‘de-coupling’ is in China’s own hands.”
Now, awkward timing for this Dutchman: The Chinese trade measures were announced as European Commission Executive Vice-President Frans Timmermans was in Beijing on Monday for a long-overdue visit to talk climate. The EU has increasingly focused on climate cooperation with China amid stiffening geopolitics on other fronts — but new export controls for solar panel-making minerals weren’t part of the plan.
In a speech at the prestigious Tsinghua University on Monday, Timmermans called on Beijing to act on climate change. “China emits between a quarter and a third of the total global greenhouse gas emissions. This means that humanity and ecosystems on this planet cannot survive without China’s ambitious emissions reductions,” said Timmermans. “China is still building additional coal power capacities — substantial ones — which is, I think we can agree on that, the dirtiest way to generate electricity.”
CHIP COMMISSIONER IN FRIENDLIER JAPAN: On Tuesday, the EU's internal market chief Thierry Breton is touring Japan, where he’ll meet the leadership of new local chipmaker Rapidus. The firm, only set up in the second half of last year, is a joint effort by eight Japanese companies (including Sony, SoftBank and Toyota) and the Japanese government in order to secure supply of the most advanced memory chips.
More from Tokyo: U.S. Ambassador to Japan Rahm Emanuel is the latest guest on the POLITICO Deep Dive podcast with Ryan Lizza. He’s got much to say about China. Have a listen.
XI-PUTIN LATEST
BEST FRIENDS CHAT ON ZOOM TODAY: Chinese President Xi Jinping, his Russian counterpart Putin and other leaders of the Shanghai Cooperation Organization meet virtually today. This will be the first international forum attended by Putin following the failed revolt by Russia’s paramilitary Wagner mercenaries. (India, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Pakistan are the other members; Iran is expected to join as a full member today.) The SCO is a broadly pro-Moscow regional security grouping, now run by former Chinese Ambassador to the EU Zhang Ming.
Xi’s ultimate worries — Russia circa 1991: In a speech published on Communist Party mouthpiece Qiushi earlier this week on the eve of the 102nd anniversary of the party’s founding, Xi called on CCP members not to repeat Soviet collapse.
“If the people we nurture stop believing in Marxism and Communism, if they stop holding the flag of socialism with Chinese characteristics, that will bring about tragedies like Eastern Europe’s revolutions, Soviet collapse and USSR disintegration.” The remarks were made in March when Xi addressed the Party School.
Further reading: What Beijing’s muted response to Wagner mutiny says about its relations with Russia by Joseph Torigian of American University … What Beijing’s growing influence in Central Asia means for Moscow by Temur Umarov and Alexander Gabuev of Carnegie Russia Eurasia Center, on Foreign Affairs.
Naval collab: China’s Defence Minister Li Shangfu met with Admiral Nikolai Yevmenov, the head of the Russian navy, in Beijing, the Chinese defence ministry said on Monday. Li told Yevmenov that the two countries’ navies should strengthen communication at all levels, and organize joint exercises and patrols on a regular basis, Reuters reported.
Spreading Xiology in Putin’s land: Russia opened a research center on Xi Jinping's ideology, the first outside China, SCMP reported.
TRANSLATING WASHINGTON
YELLEN BEIJING-BOUND ON THURSDAY: Treasury Secretary Janet Yellen will hold talks with senior Chinese officials in Beijing from July 6-9. Yellen aims to underscore the need for the U.S. and China to "responsibly manage our relationship, communicate directly about areas of concern, and work together to address global challenges," the Treasury Department said in a statement on Sunday.
MILLEY: BEIJING PURSUING ASIAN "REGIONAL HEGEMONY": The Chairman of the Joint Chiefs of Staff, Mark Milley, warned on Saturday that China's pursuit of Asian "regional hegemonic" status is putting the country in a potential collision course with the U.S. “The geostrategic history of this century will likely be determined by the United States-China relationship and whether it remains in a competition or tips into great power war," Milley said in a speech on Friday. "Some in the U.S. with evil intentions misrepresent facts and has constantly hyped up the 'China military threat' narrative," Chinese Foreign Ministry spokesperson Wang Wenbin said on Monday in response to Milley's comments.
BURNS FLAGS COUNTER-ESPIONAGE LAW DANGER: U.S. Ambassador to China, Nicholas Burns, is warning that an amendment to China's Counter-Espionage law —which took effect on July 1 —poses a legal risk to U.S. citizens in China. "American businesses, academics, journalists and others should be aware of this troubling amendment," Burns tweeted on Saturday. The amendment "expands the definition of espionage from covering state secrets and intelligence to any documents, data, materials, or items related to national security interests, without defining terms," the U.S. government's National Counterintelligence and Security Center warned last month.
CIA CHIEF DISSES DECOUPLING: CIA Director William Burns is the latest senior Biden administration official to deny that the U.S. is seeking to "decouple" from China. The administration's policy is "not to decouple from an economy like China's, which would be foolish, but to sensibly de-risk and diversify by securing resilient supply chains, protecting our technological edge and investing in industrial capacity," Burns said in a speech in the U.K. on Saturday.
NEW AMBASSADOR BAGS BIDEN FACE TIME: China's Ambassador to the U.S., Xie Feng, got some rare face time on Friday with President Joe Biden. "It's an honor to present my Letter of Credence to President Biden @POTUS today and have a conversation on the China-US relationship," Xie tweeted on Friday, complete with two photos of his moment with Biden. That meeting —complete with smiles and warm handshakes —contrasts with the cold shoulder the Biden administration gave to Xie's predecessor and now Chinese Foreign Minister Qin Gang for much of his tenure in Washington.
STATE APPROVES NEW TAIWAN ARMS PACKAGE: The State Department has approved an ammunition and military logistics supply package valued at $440 million. The approval includes a $108 million Cooperative Logistics Supply Support Arrangement and $332 million worth of 30 mm ammunition and related equipment, the Defense Security Cooperation Agency announced on Thursday. The Biden administration should "stop posing risks to peace and stability in the Taiwan Strait," Chinese Foreign Ministry spokesperson Mao Ning said on Friday in response to the approvals.
MEET OUR SPECIAL GUEST
BARBIE AND HER CARTOGRAPHICAL SCANDAL: Barbie, an upcoming movie based on the famous doll, has been banned in Vietnam because of a scene featuring a map that shows territory in the South China Sea claimed by China. According to local media in Vietnam, the Warner Bros. film starring Margot Robbie and Ryan Gosling has a map featuring the "nine-dash line," a representation of China's territorial claims in the South China Sea, Paul Dallison reports. We look forward to a Vietnam v Barbie case at the Permanent Court of Arbitration.
MANY THANKS: To editor Christian Oliver, reporters Pieter Haeck, Paul Dallison, and producer Dato Parulava.
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