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Exclusive-Targeting Chinese chips, US to push Dutch on ASML service contracts

By Karen Freifeld, Alexandra Alper and Toby Sterling

WASHINGTON (Reuters) -President Joe Biden's administration plans to press the Netherlands next week to stop its top chipmaking equipment maker ASML from servicing some tools in China, two people familiar with the matter said, as the U.S. leans on allies in its bid to hobble Beijing's tech sector.

Alan Estevez, the U.S. export policy chief, is scheduled to meet in the Netherlands next Monday with officials from the Dutch government and ASML Holding NV to discuss the servicing contracts, the people said.

Washington may also be seeking to add to a list of Chinese chipmaking factories restricted from receiving Dutch equipment as part of the discussions, one of the people said.

The Dutch Foreign Ministry confirmed the upcoming meeting but did not elaborate on which topics would be on the agenda.

"The Netherlands always has good discussions with our partners. The meeting of officials on Monday is one example of that," the Ministry told Reuters.

The Chinese Embassy in Washington said Beijing opposes the U.S.'s "overstretching" of the concept of national security and use of "pretexts to coerce other countries into joining its technological blockade against China."

The Commerce Department and ASML, whose shares briefly fell after the news, declined to comment.

The meeting is Washington's latest move to convince allies to join U.S. efforts to further crack down on Beijing’s ability to produce cutting-edge chips.

Last year, sanctioned Chinese telecoms giant Huawei shocked the world with a new phone powered by a sophisticated chip. The Huawei Mate 60 Pro was seen as a symbol of the China's technological resurgence despite Washington's ongoing efforts to cripple its capacity to produce advanced semiconductors.

Chip-related exports to China are vital for its economy. Chinese President Xi Jinping complained to Biden this week about U.S. efforts to block certain U.S. technologies, including advanced semiconductors, saying it hindered China's development.

Restrictions on servicing ASML machines could be particularly painful given the large and expensive tools require constant maintenance. China was ASML's second-largest market by sales last year (29%), after Taiwan.

Last year, Japan and the Netherlands joined a U.S. effort to keep certain chipmaking technology from China for national security reasons. The Dutch government began restricting certain deep ultraviolet (DUV) equipment for Chinese customers and partially revoked one license, impacting a small number of customers in China, according to ASML.

But the Dutch restrictions did not go as far as U.S. rules, which barred American firms from servicing equipment at advanced Chinese factories. Estevez has said publicly that the U.S. is asking allies to stop local companies from servicing certain chipmaking tools for Chinese customers.

"We are working with our allies to determine what is important to service and what is not important to service," Estevez said at an export control conference last week.

In October, the U.S. issued a regulation to keep more ASML DUV machines from certain Chinese chip factories because American parts in those tools gave Washington the power to regulate their export from overseas. Officials may broach expanding the list of Chinese factories at the Monday meeting, one of the sources said.

Last week, Dutch Prime Minister Mark Rutte met with Chinese President Xi Jinping at a summit in Beijing. Xi warned against setting up trade barriers.

Rutte said Dutch restrictions aim to disrupt business as little as possible.

However, Rutte said China's support for Russia, which the Netherlands views as its top national security threat, is a major impediment to relations – a signal that exports of goods with potential military uses to China will be scrutinized. Rutte is a top candidate to become NATO's next secretary general.

(Reporting by Karen Freifeld in New York, Alexandra Alper in Washington, D.C., and Toby Sterling in Amsterdam; Editing by Chizu Nomiyama, Lisa Shumaker and David Gregorio)