US export controls could slow China's ambitions to mass produce cutting-edge chips because the Chinese chip plants rely on US and other foreign equipment makers
Xi Jinping, the Chinese president, visited a memory chip plant in the city of Wuhan earlier this year. Tweets: @financialtimes and @emilyzfeng Tweets: @financialtimes : China's ambitions to be a leader in next-generation technology, such as artificial intelligence, rest on whether or not it can design and manufacture cutting-edge chips https://on.ft.com/2EgL25k Emily Feng / @emilyzfeng : China has made huge strides in designing smaller and more powerful chips but manufacturing might still lies overwhelming abroad - and that makes it vulnerable to a US export ban https://www.ft.com/...
Context & Ripple Effects
This 2018 report identified the core weakness in China's chip strategy: huge strides in designing smaller chips, but manufacturing might overwhelmingly abroad, with Chinese plants dependent on US and other foreign equipment makers. Xi Jinping's visit to the Wuhan memory plant underscored how central closing that gap was to Beijing's AI ambitions.
Four years later the warning materialized: when Washington imposed sweeping new controls on chips and chipmaking technology, experts described the outlook for China's semiconductor industry as dire after the October 2022 export controls. The subsequent record shows both the squeeze and the counter-moves — a 58% year-on-year surge in Chinese equipment orders in 2021 ahead of restrictions, an undocumented rule pushing chipmakers toward at least 50% domestically made equipment, and reported retrofitting of older ASML DUV lithography tools to produce advanced smartphone and AI chips.
First-order effects
- Chinese fabs lose access to the US and foreign tooling they need to mass-produce cutting-edge chips, directly stalling capacity expansion at exactly the plants Beijing has prioritized.
- Chinese chipmakers respond by stockpiling foreign equipment while it remains purchasable — the above-market prices some US suppliers reportedly commanded show demand outrunning supply ahead of any ban.
Second-order effects
- Beijing pivots from a 'gold rush' self-reliance push to enforced substitution: corruption probes into top semiconductor executives signaled a rethink of the approach, and the undocumented 50%-domestic-equipment requirement forces every new fab line to buy local tools whether or not they match foreign performance.
- Equipment makers face a shrinking addressable market in China, pushing Chinese producers to fill the gap with workarounds such as retrofitting older ASML DUV machines for advanced-node production — activity that exposes cracks in the US-led control regime itself.
Third-order effects
- If the pattern holds, the industry splits into two partially decoupled equipment ecosystems, with export-control effectiveness eroding over time as legacy tools are stretched beyond their design intent — a dynamic Arm CEO Rene Haas acknowledged is 'a hard problem to solve' using export controls alone when he assessed the limits of chip bans.
- Compute becomes the currency of the standoff: China's later drive to catch up on US AI chips, backed by political pressure on domestic AI firms to adopt local silicon, shows the 2018 manufacturing gap hardening into a state-directed market split.
The trend: Semiconductor supply chains are bifurcating along US-China lines, with export controls converting chipmaking equipment from a commercial input into the primary lever of great-power tech competition.