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China's Semiconductor Industry Advances with Domestic Lithography Production
China's semiconductor industry is experiencing significant growth, bolstered by government support and advancements in domestic technology. A state-backed entity in Shanghai announced in July 2026 that it has begun mass production of immersion DUV lithography tools designed for 28nm processes. The initial units are set to be delivered to SMIC, the country's largest contract chipmaker.
This progress is part of a broader initiative supported by the National Integrated Circuit Industry Investment Fund, known as 'Big Fund III,' which was established in May 2024 with an investment of approximately $47.5 billion. As a result of this funding, China's domestic semiconductor equipment market share has increased from 10-15% prior to U.S. export controls to between 25-35% by 2025, with production targets set for five units in 2026 and 20 in 2027.
In addition to lithography advancements, Huawei has announced a design breakthrough called LogicFolding, aimed at improving transistor density for its Kirin chip line. The company aims to achieve performance levels equivalent to 1.4nm processes by 2031. TrendForce forecasts that domestic firms will capture 50% of China's AI chip market by 2026, with key players like SMIC, YMTC, and CXMT enhancing their manufacturing capabilities in various sectors.
The implications of these developments are being felt globally, as evidenced by a temporary dip in ASML shares, reflecting investor concerns over China's progress in lithography technology. The 28nm and similar mature nodes are crucial for a wide array of products, including automotive electronics, industrial sensors, and consumer devices.
Source: KLEA News