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China’s Chipmaking Equipment Purchases Expected to Decline in 2025

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China’s spending on chipmaking equipment is projected to decline this year after three consecutive years of growth, driven by overcapacity and U.S. sanctions, according to a report released by Canadian semiconductor research firm TechInsights on Wednesday.

China has led global purchases of wafer fabrication equipment for the past two years, buying $41 billion worth of tools in 2024 and accounting for 40% of global sales. However, spending is expected to fall to $38 billion in 2025, a 6% year-over-year decline, with China’s share of global purchases dropping to 20%, marking the first decrease since 2021, according to Boris Metodiev, a senior semiconductor manufacturing analyst at TechInsights.

“We can see some slowdown in Chinese spending due to export controls and overcapacity,” Metodiev stated during an online seminar.

China had been a key growth driver in the global wafer fabrication equipment sector in 2023 and 2024, even as demand for consumer electronics declined globally. Much of the country’s recent equipment purchases were spurred by stockpiling in response to U.S. sanctions aimed at limiting China’s access to advanced chip technology, particularly those with potential military applications.

Despite these sanctions, Chinese companies such as Semiconductor Manufacturing International Corporation (SMIC) and Huawei have made advancements. Last year, they produced an advanced chip using more labor-intensive and costly methods. Chinese firms have also expanded significantly in the mature-node chip segment, boosting production capacity and gaining market share from Taiwanese competitors.

However, SMIC warned on Wednesday of potential oversupply risks in the mature-node chip market.

Leading Chinese equipment manufacturers like Naura Technology Group and AMEC have also expanded globally, with Naura now ranking as the world’s seventh-largest equipment maker by sales. Despite these efforts to bolster self-sufficiency, China still faces significant challenges in producing lithography systems and testing and assembly tools.

Dutch company ASML, the largest manufacturer of lithography machines, continues to dominate this sector. In 2023, Chinese companies provided only 17% of the testing tools and 10% of the assembly equipment used within the country, Metodiev added.

U.S. Implements New Restrictions on China’s Semiconductor Industry

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The United States unveiled a new wave of export controls on Monday targeting China’s semiconductor sector. The measures aim to restrict access to advanced chipmaking technologies that could bolster China’s AI and military capabilities. This marks the third significant U.S. crackdown on China’s semiconductor ambitions in three years.

Key Components of the New Restrictions

  1. Expanded Export Controls
    • New Targets: The U.S. added 140 entities, including Naura Technology Group, Piotech, and SiCarrier Technology, to its export restriction list.
    • High Bandwidth Memory (HBM) Chips: Restrictions now apply to advanced HBM chips critical for AI applications.
    • Tool and Equipment Curbs: New controls affect 24 chipmaking tools and three software tools essential for semiconductor production.
  2. Impacted Companies
    • Chinese Firms: Companies such as Swaysure Technology, Qingdao SiEn, and Shenzhen Pensun Technology were added to the Entity List, barring them from receiving U.S. shipments without special licenses.
    • International Suppliers: Major players like Lam Research, KLA, Applied Materials, and Dutch firm ASM International are likely to be affected.
  3. Foreign Direct Product Rule
    • Scope Expansion: The U.S. will regulate foreign-made equipment containing any U.S. chips, with exemptions for Japan and the Netherlands.
    • Affected Regions: Equipment from countries like Israel, South Korea, Taiwan, and Singapore will fall under U.S. controls.
  4. Investment Restrictions
    • For the first time, private equity and tech investment firms, including Wise Road Capital and Wingtech Technology, are included in the Entity List.

U.S. Objectives and Global Implications

The Biden administration aims to stymie China’s ability to produce advanced chips, particularly those used in artificial intelligence and defense. The move underscores bipartisan U.S. concerns over China’s tech ambitions, which are viewed as a national security threat.

China’s Response

Chinese officials criticized the measures, accusing the U.S. of undermining global trade and disrupting supply chains. Beijing vowed to protect the rights of its companies but did not provide specifics on retaliatory actions.

Industry Impact

  • Chinese Semiconductor Industry: The restrictions intensify challenges for China, which is striving for self-reliance in chipmaking but lags behind global leaders like Nvidia and ASML.
  • International Suppliers: Companies like Samsung, SK Hynix, and Micron may face disruptions, particularly in sales of HBM chips to China. Analysts estimate that China accounts for 30% of Samsung’s HBM chip sales.

Historical Context

The latest restrictions build on prior U.S. measures, including sweeping controls introduced in October 2022. These represent the most significant shifts in U.S. tech policy toward China since the 1990s.