China’s Domestic Lithography Breakthrough
A state-backed Shanghai company called Yuliangsheng has reportedly begun mass production of immersion DUV lithography machines, according to reporting by The Information citing two sources familiar with the matter.
The company plans to build five machines this year and roughly 20 by 2027. The first units are expected to ship this year to major Chinese chipmakers including SMIC, Hua Hong Semiconductor, and ChangXin Memory Technologies.
Why This Matters: US Sanctions Driving Urgency
The timing of this breakthrough is no coincidence. All three recipient chipmakers face potential restrictions from a bill working through US Congress designed to cut them off from sales and servicing by Dutch conglomerate ASML, which dominates the global lithography market.
Beijing has invested tens of billions of dollars over the past decade to develop this technology, directly countering US moves to deny China access to advanced chips and high-end manufacturing equipment. For Chinese chipmakers facing potential isolation from Western suppliers, homegrown alternatives represent a critical lifeline.
Reality Check: Not Ready for Prime Time Yet
Experts expect these domestically produced machines to still lag behind ASML’s offerings in performance and reliability. They require further testing before reaching full-scale maturity. However, even incremental progress matters when the alternative is no access at all.
For China’s chipmakers, working machines that are 80% as good as ASML’s are infinitely better than having nothing due to sanctions.
The Market Reaction: Brutal and Broad
Following The Information’s report, Asian tech stocks experienced significant declines:
- South Korea’s Kospi index: Down 10.8%, closing at 6,023.66
- SK Hynix: Sank 14.7%
- Samsung: Lost over 13%
- Tokyo’s Nikkei: Down 4%, with Kioxia, Advantest, and Tokyo Electron all falling sharply
- Taiwan’s index: Down over 4%, as market heavyweight TSMC took a hit
Both SK Hynix and Samsung have shed nearly 50% of their value since hitting all-time highs just last month.
Deeper Fear: Is the AI Boom Real?
China’s chipmaking progress arrived at an especially vulnerable moment. Investors are already questioning whether the artificial intelligence rally can sustain itself, or whether the current wave of spending represents genuine demand or speculative excess.
Susannah Streeter, chief investment strategist at Wealth Club, framed the shift bluntly: investors are now refocusing on tech revolution runners and riders
, with a new kid on the chip block causing mayhem.
Adding to the pressure, concerns have emerged that circular funding
by chipmakers including Nvidia may have artificially prolonged the AI rally. When the world’s biggest chip companies are buying each other’s products to fuel revenue growth, it raises uncomfortable questions about whether the underlying demand is as organic as markets believed.
What’s Coming Next
Markets are now bracing for earnings reports this week from major tech players including SK Hynix, Samsung, Kioxia, and US giants Microsoft, Meta, Apple, and Amazon. These reports will reveal whether the chipmaking slowdown is temporary or structural.
Interestingly, Hong Kong bucked the regional trend with gains, while London, Paris, and Frankfurt traded higher midday, supported by corporate earnings and lower oil prices. The split suggests investors are selectively rotating away from Asian chipmakers while finding value elsewhere.
For now, the message from Asia’s markets is clear: the AI boom’s invincibility is no longer taken for granted, and China’s domestic alternative to Western chipmaking technology represents a genuine competitive threat to the regional leaders who built their fortunes on being America’s preferred chip supplier.
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