Have you ever watched the closing stages of a marathon?
For most of the race, the leader looks comfortable. Every now and then, he glances over his shoulder and sees a runner who never seemed much of a threat. Then, almost without anyone noticing, that runner begins to close the gap. His stride lengthens. His pace quickens. And just when the leader thinks the finish line is safely within reach, the challenger suddenly looks capable of sweeping past.
That is increasingly what the global semiconductor race looks like. For years, the United States and its allies built an overwhelming lead in the technologies that power the modern world. Taiwan dominated the most advanced chips. South Korea dominated memory chips. The Netherlands produced the world's most sophisticated lithography machines. American companies designed the processors powering everything from iPhones and AI chatbots to fighter jets.
China, despite its manufacturing prowess, remained largely dependent on others for the most advanced technologies. That equation may now be changing.
The Lithography Breakthrough
Early this week, Reuters reported that China has begun mass-producing domestically developed immersion deep ultraviolet (DUV) lithography machines, marking a major milestone in Beijing's long campaign to reduce dependence on foreign technology. According to Reuters, the effort is being led by Shanghai Aishengna Electronic Technology Group, a relatively unknown state-owned company that has brought together engineers from several of China's leading lithography startups.
On its own, that is significant enough. But it comes alongside reports from Chinese researchers claiming huge progress towards something even more ambitious: they are poised to produce a home-grown Extreme Ultraviolet (EUV) lithography machine. If those claims are true, they could represent one of the biggest shifts in the semiconductor industry in decades. China, in other words, has crossed one technological milestone. It is now claiming to be approaching another.
These reports have coincided with the blockbuster stock market debut of memory chipmaker ChangXin Memory Technologies (CXMT). Right now, it's the toast of eager investors. Together, they suggest the chip war may be entering a new phase.
DUV And EUV Lithography
With enough engineering ingenuity, Chinese engineers are now using DUV machines to produce advanced 7-nanometre chips. EUV takes the technology to an entirely different level. It allows manufacturers to produce the world's most advanced processors - the 2nm, 3nm, and 5nm chips, now powering artificial intelligence systems, high-end smartphones, and the next generation of supercomputers.
Without EUV, building those chips becomes vastly more difficult. That is why EUV has long been regarded as the holy grail of semiconductor manufacturing. For years, one company that stood at the summit of the DUV and EUV machines was ASML, based in the Dutch town of Veldhoven. ASML dominates the global market for advanced immersion DUV lithography systems and has an effective monopoly on commercial EUV machines. No other company has successfully brought an EUV system to market.
Its machines are among the most complicated products humanity has ever built. Each one costs hundreds of millions of dollars, weighs well over 150 tonnes, and contains tens of thousands of precision components sourced from companies spread across Europe, America, and Asia. It can take months simply to assemble and install one machine. It took ASML decades to perfect the technology. That explains why China's reported progress has attracted so much attention.
The Sanctions That Backfired
Western governments often use sanctions and export controls to slow down competitors' progress or prevent them from making any progress at all. President Donald Trump, in his first term itself, and later President Joe Biden, persuaded the Dutch government to stop ASML from exporting its most advanced machines to China. The restrictions did not stop there. The US also tightened controls on advanced processors, chipmaking equipment, and sophisticated software used to design leading-edge chips. Chinese companies, including Huawei and Semiconductor Manufacturing International Corporation, better known as SMIC, suddenly found themselves cut off from technologies they had relied upon for years.
The logic was that if China could not buy the world's best chipmaking tools, it would struggle to manufacture the world's most advanced processors. For a while, that strategy appeared to work. Many analysts concluded that China would remain several generations behind industry leaders such as TSMC in Taiwan, Samsung in South Korea, and Intel in the United States.
China, however, had other ideas. Rather than treating semiconductors as simply another industrial sector, it elevated them to the level of national strategy. Tens of billions of dollars flowed into research, manufacturing equipment, materials, universities, and private companies. Reducing dependence on foreign technology was not just an economic objective but a national security issue.
China Wasn't Supposed To Get This Far
In August 2023, while US Commerce Secretary Gina Raimondo was visiting Beijing, Huawei quietly launched its Mate 60 Pro smartphone. When tech experts dismantled the phone, they discovered a domestically produced 7-nanometre processor manufactured by SMIC.
The finding stunned the Americans. Why? Precisely because they had calculated that sanctions and restrictions were enough to prevent China from producing 7nm chips. They thought it was impossible for China to achieve this feat. Instead, SMIC had produced it using older DUV technology combined with highly sophisticated engineering techniques. This was the first indication that sanctions might not be producing the outcome that the Americans had expected. Now, the Western media's confirmation that China is mass-producing its own immersion DUV lithography machines has again raised eyebrows in Washington.
Building An Ecosystem
There's this resignation in the West that China's progress is unstoppable.
But what is it that China is doing that is so different? One of the biggest misconceptions about China's semiconductor ambitions is that everything revolves around Huawei or SMIC. It doesn't. Unlike Taiwan, whose remarkable success rests largely on one company - TSMC - China has spent the better part of a decade building an entire semiconductor ecosystem. The strategy has been to strengthen every link in the chain, from chip design and manufacturing equipment to materials, memory chips, and fabrication plants. If one company falls behind, another moves forward.
Isn't that impressive? Indeed, that strategy is beginning to pay dividends. The clearest example came recently with the spectacular stock market debut of memory chipmaker ChangXin Memory Technologies (CXMT). Investors rushed to buy into the company, seeing it as evidence that China is becoming a serious force in memory chips - one of the most important building blocks of the AI revolution.
Memory Chips vs Processor Chips
Memory chips are very different from processors. Processors - the CPUs and GPUs made by companies, such as Nvidia, AMD, and Apple - do the thinking. Memory chips store the information those processors need to work. Modern artificial intelligence systems require vast amounts of both computing power and memory. Without one, the other becomes far less useful. For years, South Korea's Samsung and SK Hynix, together with America's Micron, dominated the memory business. China is now beginning to challenge that dominance.
CXMT has rapidly become the world's fourth-largest producer of DRAM memory chips, which provide the temporary working memory computers need to process data. Yangtze Memory Technologies, better known as YMTC, has emerged as a significant manufacturer of advanced NAND flash memory, which stores data permanently in smartphones, laptops, and data centres. It seems China is no longer trying to build one world-class chip company. It is trying to build an entire chip industry.
How China Bounced Back
Policymakers in Washington are increasingly asking themselves if the sanctions achieved their objective. In the short term, the answer undoubtedly is yes. Chinese companies lost access to some of the world's most advanced technologies. They were forced to redesign products, delay projects, and spend billions developing domestic alternatives.
But rather than slowing China indefinitely, the sanctions appear to have strengthened Beijing's ramrod determination to build its own semiconductor industry from the ground up. The result is a wave of investment, unlike anything the industry has seen before. Through successive National Integrated Circuit Industry Investment Funds - known simply as the "Big Fund" - China has poured tens of billions of dollars into research, manufacturing equipment, materials, and semiconductor startups. Provincial governments have added generous subsidies, cheap financing, and tax incentives.
What does this mean for Western companies?
The implications extend well beyond China. For ASML, a self-sufficient Chinese lithography industry could eventually mean losing one of the world's largest future markets. Perhaps that is the reason its stocks tumbled after the Chinese breakthrough news came in early this week. American companies, such as Applied Materials, Lam Research and KLA, which dominate different stages of chip manufacturing equipment, could also face increasing competition from Chinese rivals. South Korea's Hynix and Samsung saw their stocks plummet in the volatile South Korean stock market.
Even Nvidia, whose AI chips remain superior to Chinese competitors, is watching closely. The more capable China's domestic semiconductor industry becomes, the easier it will be for Chinese firms to develop alternatives across the entire AI supply chain.
What is a bit alarming for big American AI and IT giants is that while their government is trying to slow China's technological rise through export controls and sanctions, some smaller American companies are quietly embracing Chinese AI models because they are so much cheaper. Competition in AI is not just about who builds the smartest model. It is increasingly about who can build one that's good enough at a fraction of the cost. Also, the competition is not just about who makes the fastest processor. It is increasingly about who controls the technology needed to manufacture those processors in the first place.
Many experts have started to believe that the semiconductor industry may gradually split into two parallel ecosystems - one centred around the United States and its allies, the other around China.
Where India Fits In
It hurts to say India is too far behind in this race. It responded to the American and its allies' near monopoly over the entire semiconductor assembly line quite late in the day. Nonetheless, better late than never. India has, in the last few years, committed billions of dollars to establishing a domestic semiconductor manufacturing and packaging ecosystem. Incentive schemes have attracted investment from companies such as Tata Electronics, Micron, and several international partners, while fabrication projects are beginning to take shape. Many of these activities started only after the Covid-19 pandemic. Unlike China, India does not yet possess an integrated semiconductor supply chain spanning design, equipment, materials, and manufacturing. Experts will tell you building such an ecosystem takes years, substantial investment, and a highly specialised workforce. If China succeeds further in mastering increasingly advanced chipmaking technologies, the competitive gap could widen further.
The Race Has Changed
The marathon is far from over. The US still leads in chip design. Taiwan remains home to the world's most advanced chip manufacturer. ASML continues to dominate advanced lithography, particularly commercial EUV systems. That's what the current situation tells us. One can say that China has not overtaken them. But it has done something that, until recently, many believed would take much longer. It has demonstrated that sanctions alone cannot stop technological ambition.
So, China has not won the semiconductor marathon. It has not won the chip war. But China is breathing down America's neck. And in marathons, the moment the leader starts looking over his shoulder is often the moment the race becomes truly interesting.
(Syed Zubair Ahmed is a London-based senior Indian journalist with three decades of experience with the Western media)
Disclaimer: These are the personal opinions of the author
