(Bloomberg) -- Japan and the Netherlands are poised to join the US in limiting China's access to advanced semiconductor machinery, forging a powerful alliance that will undercut Beijing's ambitions to build its own domestic chip capabilities, according to people familiar with the negotiations.
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US, Dutch and Japanese officials are set to conclude talks as soon as Friday US time on a new set of limits to what can be supplied to Chinese companies, the people said, asking not to be named because the talks are private. Negotiations were ongoing as of late Thursday in Washington. There is no plan for a public announcement of restrictions that will likely be just implemented, the people said.
The Netherlands will expand restrictions on ASML Holding NV, which will prevent it from selling at least some of its so-called deep ultraviolet lithography machines, crucial to making some types of advanced chips and without which attempts to set up production lines may be impossible. Japan will set similar limits on Nikon Corp.
A spokeswoman for the National Security Council declined to comment.
The joint effort expands on restrictions the Biden administration unveiled in October that were aimed at curtailing China's ability to manufacture its own advanced semiconductors or buy cutting-edge chips from abroad that would aid military and artificial-intelligence capabilities. The three countries are home to the most important companies that produce equipment for manufacturing chips, including ASML, Japan's Tokyo Electron Ltd. and the US's Applied Materials Inc.
US equipment makers have complained that the unilateral action by the Biden administration allowed overseas competitors to continue to operate in one of the biggest markets for their products and undermined the aim of restricting China's military advancements.
Tokyo Electron, which has sold chip-making equipment to China, reversed gains and fell about 1% after Bloomberg's report.
China's chipmakers dropped too. Shanghai's Semiconductor Manufacturing International Corp. extended declines to as much as 2.1%, while Hua Hong Semiconductor Ltd. slid as much as 1.5%.
In addition, China's offshore yuan reversed earlier gains against the dollar, weakening 0.1% to 6.7448 after the report. The currency had rallied to the strongest level in two weeks on signs of revived tourism and consumption during the Lunar New Year holidays. Thinner trading has also amplified moves in the foreign exchange market with mainland markets shut.
"This sets the next escalating move in the US-China tech war a bit more meaningfully and could weaken yuan sentiment a tad in the near-term," says Fiona Lim, a foreign-exchange strategist at Malayan Banking Berhard in Singapore.
China has fought back against the US effort. Beijing filed a dispute with the World Trade Organization in December aimed at overturning the US-imposed export controls.
Even ASML's chief executive officer has warned that the US campaign could have unintended consequences. On Jan. 25, CEO Peter Wennink said the US-led export control measures against China could eventually push Beijing to successfully develop its own technology in advanced chipmaking gear.
"If they cannot get those machines, they will develop them themselves," he said in an interview with Bloomberg News. "That will take time, but ultimately they will get there."
--With assistance from Debby Wu, Cagan Koc, Ian King and Tania Chen.
(Updates with yuan's move from the ninth paragraph)
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