Japan's Ajinomoto has reportedly cut supply of a critical semiconductor material to China by 30%, marking a sharp escalation in export control tensions between the two countries. The move targets ABF, an insulating film used in nearly every high-end processor package, and threatens to disrupt China's ability to manufacture advanced AI chips. With Ajinomoto controlling roughly 95% of the global ABF market and China's self-sufficiency sitting below 5%, the squeeze has forced Chinese chipmakers into an urgent race to develop domestic alternatives.

The supply cut appears to be retaliation for China's own export restrictions. In January 2026, China banned exports of dual-use items to Japanese military-linked end users, which resulted in a 51% year-over-year drop in restricted rare earth exports to Japan during the first half of 2026. Ajinomoto's move eight months later carries obvious retaliatory optics, though the company attributes the reduction to prioritizing Japanese customers and overseas accounts that supply accelerators for Nvidia, AMD, and Intel.

Why Does This Material Matter So Much?

ABF is not glamorous, but it is essential. The film acts as an insulating build-up layer in FC-BGA (flip-chip ball grid array) substrates, the packaging that holds advanced processors. Without it, companies cannot manufacture the high-end chips that power data centers and AI systems. Ajinomoto's ABF production runs at roughly 2 million square meters per month at full capacity, and the company has committed 25 billion yen (approximately $156 million USD) since 2023 to expand capacity by about 50% by 2030.

The shortage is not theoretical. Goldman Sachs projects that the gap between ABF substrate supply and demand will widen from around 10% in the second half of 2026 to 21% in 2027 and 42% in 2028. In May 2026, Ajinomoto also notified substrate makers of a roughly 30% price hike taking effect this quarter, which flows directly into the cost of every processor package built on the material. Since ABF accounts for about 30% of a substrate's bill of materials, the increase hits hard across the entire supply chain.

What Are China's Domestic Alternatives?

China is racing to qualify three homegrown ABF substitutes, each at a different stage of development. The most mature option is Huazheng New Material's CBF, developed with the Shenzhen Institute of Advanced Electronic Materials. The film uses a modified epoxy resin with spherical silica filler, which routes around Ajinomoto's intellectual property rather than copying it. According to Chinese media reports, its mass-production yield sits above 85%, and reliability testing has reportedly passed inside Huawei Ascend systems, with validation underway at Xingsen and Shennan Circuits.

Huazheng's first production line produces 3 million square meters per year and is running at full utilization, with a second line doubling that capacity slated to come online at the end of 2026. Two other candidates are also advancing:

• Lotus Holdings' NBF: Lotus, best known as a producer of MSG, acquired 51% of Shenzhen Newface, the developer of NBF, in April for roughly 103 million yen. Newface has qualified all products below nine build-up layers, with nine to 11-layer films in development and validation underway at Taiwanese substrate makers.
• Hongchang Electronics' GBF: Co-developed with Taiwan's Jinghua Technology, GBF has been validated at a leading domestic outsourced semiconductor assembly and test (OSAT) provider and is in small-volume trial production, with scale-up targeted for the fourth quarter.
• Upstream Dependencies: All three films face the same challenge of downstream reliability qualification, which takes one to three years of thermal cycling, damp-heat aging, and electrical testing. The highest layer-count films under flagship AI accelerators remain unmatched domestically, and upstream inputs including specialty resins and spherical silica filler are themselves partly import-dependent.

How Are Chinese Chipmakers Adapting?

Huawei's approach offers a potential workaround. The company's Ascend 910C reportedly connects two compute dies on separate silicon interposers through an organic substrate, an approach that trades die-to-die bandwidth for yield and cost against Nvidia's CoWoS packaging. This architecture makes Huawei less dependent on the high layer-count ABF-based FC-BGA substrates that Nvidia's B200 and GB200, AMD's MI300X, and Intel's accelerators sit on.

Chinese reporting positions Ascend as the anchor qualification target for both CBF and GBF, meaning Huawei's willingness to validate these materials could accelerate their adoption across the industry. However, other major Chinese AI chip designers are directly exposed to any mainland ABF supply disruptions. Cambricon, Biren, Moore Threads, and Alibaba's T-Head all package on conventional FC-BGA substrates and cannot easily switch architectures.

China is also pursuing a longer-term solution through glass substrates. BOE signed a three-year glass substrate agreement with Corning in May and designated glass-core packaging a strategic business in July, while Lens Technology announced a through-glass-via collaboration with Intel the same month. However, glass does not eliminate the need for ABF or its substitutes. A glass core swaps out the middle layer of a substrate, but the chip package still needs insulating film built up on either side, so glass remains years away from mass production.

What Does This Mean for Global Supply Chains?

The ABF squeeze is part of a broader pattern where single Japanese suppliers dominate critical semiconductor materials. The same dynamic has already hit BT resin substrates and T-glass cloth, creating recurring bottlenecks. The current cycle looks to be extending this pattern, with implications for every major chipmaker relying on advanced packaging.

Meanwhile, the geopolitical dimension is unmistakable. Export controls and retaliatory measures are fragmenting the global semiconductor supply chain, forcing companies to either diversify suppliers or develop domestic alternatives. China's success in qualifying its ABF substitutes will determine whether its AI chip industry can sustain growth despite the supply cut, while Japan's control of this critical material underscores the leverage that dominance in niche semiconductor inputs provides in an era of tech competition.

How Companies Can Navigate Export Control Disruptions

• Supplier Diversification: Chipmakers should identify single-source dependencies in their supply chains and actively qualify alternative suppliers, even if they are more expensive or less mature. The ABF shortage demonstrates that geographic concentration of critical materials creates systemic risk.
• Vertical Integration Investments: Companies like Huawei are investing in alternative packaging architectures that reduce reliance on specific materials. Smaller chipmakers should explore whether design changes can reduce exposure to bottlenecked inputs.
• Government Engagement: Policymakers in countries dependent on imported semiconductor materials should support domestic R&D programs and manufacturing scale-up, as China is doing with its CBF, NBF, and GBF initiatives. The qualification timeline for new materials is measured in years, not months.

The ABF crisis illustrates a fundamental shift in semiconductor competition. As export controls tighten and geopolitical tensions rise, the ability to source or manufacture critical materials independently is becoming as important as chip design itself. For China, the next 12 to 18 months will determine whether its domestic ABF alternatives can scale fast enough to prevent a production bottleneck. For the rest of the world, the lesson is clear: reliance on any single supplier for critical inputs is a vulnerability waiting to be exploited.