China is accelerating its artificial intelligence ambitions by enhancing older semiconductor manufacturing equipment, revealing growing limitations in US-led export controls aimed at slowing Beijing’s technological progress.
According to international media reporting and industry sources, Chinese chipmakers are upgrading legacy deep ultraviolet (DUV) lithography machines supplied by Dutch manufacturer ASML. These systems, while not the most advanced tools available globally, are being retrofitted with improved components to manufacture chips at the seven-nanometre level — a key threshold for advanced AI and high-performance smartphone processors.
Under current export restrictions imposed by the US and its allies, ASML is prohibited from selling its most advanced lithography systems to China, including extreme ultraviolet (EUV) machines. It is also restricted from upgrading certain performance aspects of existing DUV tools, such as overlay precision and processing speed. As a result, Chinese fabs have been forced to rely on older ASML models that were shipped before tighter controls came into effect.
However, Chinese manufacturers appear to be sourcing replacement parts and advanced components — including wafer stages, sensors, and optical elements — through secondary global markets. Third-party engineering firms are reportedly assisting with on-site modifications, enabling these older machines to operate with greater accuracy and efficiency than initially permitted.
Major domestic players such as Semiconductor Manufacturing International Corporation (SMIC) and Huawei are believed to be among those leveraging these upgraded systems. Through complex techniques such as multi-patterning — which involves multiple exposures of silicon wafers — Chinese fabs are pushing beyond traditional limits, albeit at higher cost and lower yields. Recent improvements, however, are helping to offset some of these drawbacks and lift overall production capacity.
Industry analysts note that China has made notable progress despite restricted access to cutting-edge tools. Research firm TechInsights has highlighted that Huawei’s latest Kirin processors represent the most advanced manufacturing achievements seen in China to date.
The situation underscores a broader challenge for policymakers. While export controls have slowed China’s access to leading-edge technology, they have also incentivised domestic innovation and workarounds within the global supply chain. Meanwhile, ASML’s China revenue surged sharply in 2023 and 2024 as Chinese customers rushed to secure equipment before additional restrictions were introduced.
For Australian investors, the developments highlight several key themes: the resilience of China’s semiconductor ecosystem, the rising strategic importance of supply-chain control, and the ongoing volatility facing global chipmakers amid geopolitical uncertainty.
As the AI arms race intensifies, markets may increasingly reward companies that can adapt to regulatory complexity — rather than those that rely solely on technological leadership.
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