China's Programme: A Decade Behind, and Funded AnywayNarrow moat
ASML (ASML) — moat facet
A programme more than a decade behind, funded by a state that does not need it to pay — which is how ASML itself began.
China is attempting to build a domestic lithography industry because it has been denied access to ASML's. Shanghai Micro Electronics Equipment produces i-line and some DUV tools, passed its SSA800 technology to Shanghai Yuliangsheng in 2025 while retaining its EUV programme, and the domestic DUV effort is estimated to lag ASML by about four generations, with EUV capability more than a decade behind.
Those gaps are enormous and the effort is nonetheless serious. Machines are expected to reach SMIC, Hua Hong and ChangXin, with targets of roughly five units in 2026 and twenty in 2027 — small numbers that establish a supply chain, a workforce and a feedback loop between tool maker and fab. That is how ASML itself began.
The important point is what this competitor is for. It is not trying to sell to TSMC or Intel; it exists to serve a Chinese industry that policy has separated from ASML. The commercial damage is therefore not lost customers but a shrinking addressable market — and export restrictions have already cut China's share of ASML revenue toward about 20% in 20261.
Watch domestic Chinese tool installations rather than specifications. Announcements about capability are unreliable; machines actually running production wafers at a named fab are the measure, and they compound.
The gap is enormous and the effort is compounding: technology handed on to a successor entity, machines targeted at named Chinese fabs, and roughly five units in 2026 rising toward twenty in 2027. None of it threatens ASML's customers. All of it shrinks ASML's addressable market, which export restrictions have already cut toward about 20% of revenue.
The mature DUV tools a domestic Chinese maker can most plausibly replace first. Further falls would show substitution arriving at the trailing edge.
Source: ASML Form 20-F, FY2025 ↗- Third-party estimateSMEE passed SSA800 technology to Shanghai Yuliangsheng in 2025 while keeping its EUV programme; targets are ~5 units in 2026 and ~20 in 2027 at SMIC, Hua Hong and CXMT; DUV lags ~4 generations and EUV 10+ years; China is ~20% of ASML revenue in 2026.Analysis of Chinese lithography progress — China's leading supplier SMEE produces i-line and some DUV tools and passed SSA800 technology to Shanghai Yuliangsheng in 2025 while retaining its EUV project; first machines are due to reach SMIC, Hua Hong and ChangXin Memory Technologies with targets of around five units in 2026 and roughly 20 in 2027; Chinese DUV lithography lags ASML by about four generations and SMEE's EUV capability is estimated to be more than a decade behind; restrictions on DUV immersion tools cut China's share of ASML revenue to about 20% in 2026 — 2026 · publ. July 2026 · source ↗