US-China geopolitical squeeze leaves ASML caught between US sanctions enforcement and China revenue dependencies.

China's launch of a homegrown advanced lithography chip printing machine is highlighting how European chip tool manufacturer ASML is caught between tightening U.S. export controls and emerging competition from Beijing's push for technological self-sufficiency.

Reuters reported that Shanghai Aishengna Electronic Technology Group, a little-known Chinese state-owned firm, is leading an effort to mass produce locally manufactured immersion deep ultraviolet (DUV) lithography tools, which are critical to modern chipmaking. Following the report, ASML's shares fell roughly 10% over two days, erasing more than €60 billion from its market value.

ASML dominates the global market for DUV and more advanced EUV lithography machines used to print circuitry on AI chips. The company's stock had surged over the past year—up approximately 50% in 2026—raising investor confidence it could become Europe's first trillion-dollar company.

According to The Information, which first reported the Chinese initiative, Beijing plans to produce five immersion DUV tools this year and twenty in 2027 for sale to major Chinese chipmakers. This remains substantially below ASML's 2025 output of 131 such systems. JPMorgan analysts suggested medium-term damage would be limited, though they acknowledged this development as "another data point in China's equipment self-sufficiency story" that raises long-term risks to ASML's China revenue.

ASML reported that China accounts for approximately 20% of its revenue, roughly €9 billion annually, despite successive rounds of U.S.-led export controls preventing sales of its most advanced EUV products and best immersion DUV tools to China. U.S. Congress is currently debating legislation that could block ASML's remaining immersion DUV exports—precisely the segment Aishengna is targeting.

However, developing a competitive immersion DUV lithography system differs significantly from unseating ASML's market dominance. Over two decades, ASML built its leading position through steady performance improvements in yield and throughput, displacing competitors including Japan's Nikon and Canon. Any manufacturer selecting a less-capable domestic system typically accepts lower productivity and higher per-chip costs.

Yet U.S. export restrictions alter this calculation. Chinese chipmakers may accept inferior domestic equipment if the alternative is reliance on foreign tools whose availability the United States could later restrict. Sanne van der Lugt, a researcher at the Netherlands' Leiden Asia Center, observed that the development exemplifies how stricter export controls can backfire. "What this shows is that U.S. export controls successfully created a business case for Chinese lithography," she said. "It was not what they were intended to do, but that is the outcome."

Van der Lugt added that Chinese firms "already do not really trust that they can rely on Dutch technology in the long run," making the calculus straightforward for Chinese customers: "For them it may be this or nothing."