China Begins Mass Production of Domestic Lithography Machines, Threatening AI Chip Supply Chain

China has taken a significant step toward self-sufficiency in semiconductor manufacturing by beginning mass production of its own immersion deep ultraviolet (DUV) lithography machines. According to a report by The Information, an unnamed Chinese company backed by the government of Xi Jinping has started serial production of the tools that etch circuit patterns onto silicon wafers. The breakthrough could eventually reduce China’s reliance on Dutch giant ASML and weaken the impact of US-led export controls on advanced AI chips.

The company, widely believed to be Shanghai Yuliangsheng Technology, a startup linked to Huawei and SiCarrier, aims to deliver five units this year to Chinese foundries SMIC, Hua Hong Semiconductor, and CXMT (ChangXin Memory Technologies). A further 20 machines are planned for 2027. SMIC has been testing a Yuliangsheng tool since September 2025, according to the report.

Key facts

The machines are designed for 28 nm process technology, but with advanced multipatterning techniques they could reach 7 nm nodes or potentially finer geometries. That would be sufficient for many AI accelerator chips, edge AI processors, and memory components. However, the Chinese equipment is expected to lag behind ASML in performance, yield, and reliability. Independent analysis from AI Futures Project, published in June, estimates that commercial-scale Chinese immersion DUV production will not arrive until the mid-2030s.

Market and geopolitical impact

The news triggered an immediate sell-off in semiconductor equipment stocks. ASML shares fell as much as 6.5% in Amsterdam, while Applied Materials, Lam Research, and KLA Corp dropped between 4% and 7%. The reaction reflects investor concern that China’s progress could eventually erode ASML’s dominant position in the Chinese market, which remains a significant revenue source despite US and Dutch export restrictions.

The US government is considering additional curbs under the proposed MATCH Act, which could extend restrictions to servicing and maintaining existing lithography equipment already installed in Chinese factories. China’s domestic manufacturing push is a direct response to these tightening controls. The country is also developing extreme ultraviolet (EUV) lithography, but analysts say that project remains in early prototype stages and is years away from commercial chips.

Hardware implications for AI development

For AI developers and cloud providers, the availability of advanced chips is a critical constraint. If Chinese foundries can produce more advanced chips using domestic lithography, the impact of US export controls on AI accelerators and memory could be blunted. However, the current machines still rely on some Japanese components, and qualification testing will take months before large-scale production begins. SMIC has set 2027 as its target for mass production of chips using these tools.

Even if successful, the volume of Chinese machines is tiny compared to ASML’s output. ASML’s CFO Roger Dassen stated in the company’s July earnings call that it expects to deliver around 130 immersion DUV units in 2026, roughly the same as 2025. China’s planned 20 units in 2027 would be equivalent to less than two months of ASML’s production.

Limits and uncertainties

The identity of the manufacturing company has not been officially confirmed. International media have not yet independently verified the production claims. The performance and reliability of the Chinese machines compared to ASML’s tools remain unknown. The AI Futures Project analysis suggests a longer timeline, and the gap between prototype and volume production is wide. Additionally, the effectiveness of multipatterning to reach 7 nm depends on the specific design rules and yields, which have not been disclosed.

Source: Laura López, “China prepara su primera gran victoria en chips: ya fabrica en masa sus propias máquinas de litografía UVP, según The Information,” Xataka, July 28, 2026. https://www.xataka.com/empresas-y-economia/china-prepara-su-primera-gran-victoria-chips-fabrica-masa-sus-propias-maquinas-litografia-uvp-the-information