Japanese chip equipment companies rely on Chinese sales despite U.S. efforts to restrict high-end exports to Beijing.

• Despite being entangled in the U.S.-China conflict, Japanese semiconductor equipment manufacturers have relied heavily on China as their primary revenue source.
• The challenge for the U.S. ally in balancing White House demands with domestic economic interests is highlighted by the large business of Japanese chip companies in China.

Despite being entangled in the U.S.-China conflict, Japanese semiconductor equipment manufacturers have relied heavily on China as their primary revenue source.

Nearly $72 billion Japanese semiconductor equipment powerhouse experienced a 44% increase in China revenue in financial year ended March 2024, compared to 23% in the previous year, as stated in the company's earnings report.

In the first quarter of financial year 2025, the share increased to nearly 50%, up from 39.3% in the same period the previous year.

In the financial year ended March 2024, the company generated 43% of its total sales from China, up from 19% in financial year 2023. This share increased to 51% in the first quarter of the current financial year, compared to 23% in the same period last year.

The sales share of China for the fiscal year ending in March 2025 is predicted to be 41% by the company.

The challenge for the U.S. ally in balancing White House demands with domestic economic interests is highlighted by the large business of Japanese chip companies in China.

New export controls measures, including for quantum computing and chip-related goods, are being introduced by the U.S., as announced by the Department of Commerce on Friday.

Japanese companies are expected to supply legacy chips, used in cars rather than smartphones or for training advanced artificial intelligence models, with their manufacturing equipment to China.

Earlier this week, Bloomberg reported that China had warned of retaliation if Japan tightened its restrictions on exports to China.

Beijing denied the report and stated that it is dedicated to maintaining the global industrial and supply chain's security and stability. Mao Ning, China's Foreign Ministry spokeswoman, made this statement during a Monday press conference. Additionally, she emphasized that China's export control measures are fair, reasonable, and nondiscriminatory.

In June 2019, Japan implemented export controls to restrict the sale of chip equipment to China. China's Ministry of Commerce condemned the move as an "abuse of export control" and a "serious violation of WTO's mandated duties," according to a CNBC translation of the ministry's statement in Mandarin.

The U.S. and its allies have been putting pressure on China to limit its access to advanced chips.

Despite efforts by China to acquire chip-making equipment from Dutch firm ASML, the country's government has prevented the export of the tools necessary for producing advanced chips.

It is predicted by analysts that China will soon become self-sufficient in producing chips for most applications.

Since the second quarter of 2023, China has increased its purchases of chip-making equipment, with SEMI reporting that the country bought about $25 billion worth of equipment in the first half of 2024, surpassing the combined total of the U.S., South Korea, Taiwan, and Japan.

—CNBC's Evelyn Cheng and Arjun Kharpal contributed to this report.