A Jolt to China’s Semiconductor Ambitions
The Chinese semiconductor sector faced a sharp setback this week as shares of leading chipmakers tumbled following renewed US export restrictions and escalating global tech tensions. The latest round of US curbs, announced in early May 2025, targets advanced chipmaking equipment and artificial intelligence (AI) processors, intensifying the pressure on China’s ambitious plans to achieve self-sufficiency in semiconductors.
What Triggered the Sell-off?
The immediate cause for the sell-off was the US Department of Commerce’s decision to tighten export controls on advanced lithography machines and high-end AI chips, citing national security concerns. This move directly impacts giants like Semiconductor Manufacturing International Corporation (SMIC), Hua Hong Semiconductor, and Shanghai Micro Electronics Equipment (SMEE)-all of whom saw their shares drop by as much as 10% in a single trading session on the Shanghai and Hong Kong exchanges.
The restrictions are part of a broader US effort to curb China’s access to cutting-edge technology, particularly those with potential military applications. The new rules expand the list of items requiring export licenses and close loopholes that previously allowed some equipment to reach Chinese firms via third countries.
The Human Face: Industry Leaders Under Pressure
Behind the headlines are industry stalwarts like Dr. Zhao Haijun, co-CEO of SMIC, who has been at the forefront of China’s semiconductor drive. Dr. Zhao, a veteran with decades of experience in chip manufacturing, has repeatedly emphasized the importance of technological independence. However, he now faces mounting challenges as SMIC’s access to essential equipment from Dutch firm ASML and US-based Applied Materials becomes increasingly restricted.
The Chip War Timeline
The current turmoil is the latest chapter in a saga that began in 2019, when the US first blacklisted Huawei and other Chinese tech firms. Since then, Washington has steadily expanded its list of restricted technologies, citing concerns over intellectual property theft and national security. In response, Beijing has poured billions into domestic chip research and development, but progress remains hampered by the lack of access to the world’s most advanced tools.
Ripple Effects Across Markets
The impact of the share decline extends beyond the stock market. Chinese chipmakers are now facing delays in production, rising costs, and uncertainty around future investments. Smaller firms, which rely heavily on imported equipment, are particularly vulnerable. Meanwhile, global investors are reassessing their exposure to the Chinese tech sector, leading to increased volatility in related indexes.
What’s Not in the Headlines: Domestic Substitutes and Black Market Risks
While the focus is often on headline restrictions, a less-discussed aspect is the rise of domestic substitutes and the shadowy black market for chipmaking tools. Chinese startups, backed by state funding, are working feverishly to develop homegrown alternatives to ASML’s EUV lithography machines. However, industry insiders acknowledge that these efforts are years away from matching global standards.
At the same time, there are growing concerns about the proliferation of gray-market channels, where restricted equipment is smuggled into China via intermediaries in Southeast Asia and the Middle East. This underground trade poses new challenges for regulators and raises questions about the effectiveness of export controls.
Is it Innovation or Isolation?
As the world’s two largest economies continue their tech rivalry, the future of China’s semiconductor industry hangs in the balance. Some analysts predict that the current setbacks will only accelerate Beijing’s resolve to achieve chip independence, while others warn of a prolonged period of technological isolation.
For now, the fall in Chinese chipmakers’ shares serves as a stark reminder of the interconnectedness-and fragility-of the global tech supply chain. Investors, policymakers, and industry leaders alike will be watching closely as the next chapter in the chip war unfolds.
