China’s chip industry breaks out with government support as domestic lithography tools enter mass production

A state-backed Shanghai entity announced in July 2026 that it has commenced mass production of immersion DUV lithography tools targeting 28nm processes, with initial deliveries headed to SMIC, China’s largest contract chipmaker. The money behind the momentum The third phase of the National Integrated Circuit Industry Investment Fund, known colloquially as “Big Fund III,” was established in May 2024 with 344 billion RMB, roughly $47.5 billion. China’s domestic semiconductor equipment market share has climbed from around 10-15% before US export controls kicked in to between 25-35% by 2025. Production targets call for approximately 5 units in 2026 and 20 in 2027. Design breakthroughs and the AI chip race Huawei announced a design breakthrough called LogicFolding in May 2026, a technique aimed at enhancing transistor density for its Kirin chip line. The company’s stated ambition is to match performance equivalent to 1.4nm processes by 2031. TrendForce projects that domestic firms will supply 50% of China’s AI chip market by 2026. The key players benefiting from this wave extend beyond just Huawei. SMIC continues to expand its manufacturing capacity, while memory chipmakers YMTC and CXM...