[U.S. cuts off equipment supply to Hua Hong Semiconductor… China’s semiconductor rise “backed into a corner”]

The U.S. Department of Commerce has completely blocked the supply of semiconductor equipment to subsidiaries of Hua Hong Semiconductor, China’s second-largest foundry. Consequently, China’s strategy for semiconductor self-reliance, which has been pursued for over a decade, has encountered a decisive crisis. This move signifies that the U.S. has fundamentally neutralized China’s attempts to transition into advanced processes, causing China’s semiconductor ambitions to taste the bitterness of frustration once again.

On April 30, Reuters reported, “The U.S. Department of Commerce sent letters last week to the three major U.S. semiconductor equipment companies—Lam Research, Applied Materials, and KLA—notifying them to immediately cease the supply of equipment and raw materials to factories related to Hua Hong Semiconductor.” The report added, “This measure goes beyond simple sanctions on an individual company; it directly targets the heart of the semiconductor rise that China has been pushing by mobilizing its national capabilities.”

In March, Reuters had exclusively reported, “With cooperation from Huawei and Chinese equipment makers like SiCarrier, Huali Microelectronics is developing 7-nanometer (nm) process technology usable for AI chip production and is preparing for mass production at its Shanghai fab.”

From this perspective, Reuters pointed out, “The direct target of this regulation is Shanghai Huali Microelectronics (Huali), a foundry subsidiary under Hua Hong Semiconductor,” and noted, “The letter from the U.S. Department of Commerce explicitly states the intent to block the equipment supply route heading to Huali.”

Following the news of the regulations on the 28th (local time), KLA shares plunged about 6% on the New York Stock Exchange, while Lam Research and Applied Materials fell by around 4-5%. Shares of Hua Hong Semiconductor, listed on the Hong Kong Stock Exchange, also closed 3.5% lower.

[10 Years of ‘Semiconductor Rise,’ The Paradox of 166 Trillion Won]

This situation once again vividly exposes the structural limitations facing China’s semiconductor industry. In 2015, the Chinese government declared ‘Made in China 2025 (MIC2025)’ and invested a total of over $115 billion (approx. 166 trillion KRW) into the semiconductor industry through the Big Fund and local government funds. In 2024 alone, it launched a massive offensive by commencing the construction of 18 new wafer fabs.

However, according to TrendForce data, the combined global market share of China’s top three foundries—SMIC, Hua Hong Group, and Nexchip—actually regressed from 9.6% in 2022 to 8.6% in the third quarter of last year. Despite the astronomical capital injection, their market dominance has weakened.

As of 2024, China's semiconductor self-sufficiency rate stands at only about 33%. This is less than half of the 70% target originally set by China. Tom’s Hardware diagnosed, “As of 2026, the Chinese semiconductor industry has reached a point where it can no longer develop, no matter how much money is poured in,” and identified, “The core of the issue lies with Extreme Ultraviolet (EUV) lithography equipment.”

In fact, since 2019, the Dutch company ASML has ceased selling EUV equipment to China under pressure from the U.S. government. Because mass production of processes below 5nm is impossible without EUV, SMIC and Hua Hong have been unable to cross this threshold.

[DUV Multi-patterning Detour also a ‘Cost Trap’]

Instead of EUV, Chinese companies have attempted to enter the 7nm process by utilizing ‘multi-patterning’ techniques with older Deep Ultraviolet (DUV) equipment, which involves overlapping circuit drawings multiple times. While it is true that SMIC succeeded in mass-producing 7nm-grade Kirin chips using this method, the economic viability is fatal. Semiconductor experts point out, “A 7nm process using DUV is 40-50% more expensive than an EUV process,” and noted, “The structure makes it impossible to profit from commercial mass production due to the difficulty in securing yield (the ratio of defect-free products).”

In reality, as of 2024, SMIC’s gross margin fell to 18% and its net margin to 9.1%. Furthermore, 87% of its 2024 operating profit came from government subsidies (approx. $411 million). Analysis suggests that without subsidies, the operating profit would have been a mere $62 million. Behind the facade of technological independence lies the deep shadow of financial dependence.

The 7nm process being conducted by Huali is also known to be based on the same DUV multi-patterning method. While industry sources say the goal is to secure an initial monthly production capacity of several thousand wafers by the end of this year, the yield level remains unconfirmed. The U.S. Department of Commerce’s move to block equipment supply is a calculated measure to nip the supply chain in the bud before this unstable production system can expand.

[Equipment Self-sufficiency at 9.6%, The Wall is Higher]

Regarding this, the U.S.-China Economic and Security Review Commission (USCC) pointed out in a report, “As of 2023, China’s domestic fulfillment rate for 20-14nm class semiconductor equipment is only 9.6%.” It added, “This figure strikingly shows how much China relies on external equipment as it moves toward advanced processes.”

The USCC further noted, “Some lithography, etching, and deposition equipment required for advanced processes are subject to export licenses or are effectively restricted from entry. While existing facilities in China can perform maintenance or limited upgrades, they face constraints in transitioning to advanced processes or large-scale expansion.”

Accordingly, China set key goals in its 15th Five-Year Plan (2026-2030), including achieving an 80% semiconductor self-sufficiency rate by 2030, 100% localization of 7nm process production equipment, and stable mass production of the 14nm process. However, experts express doubt about achieving these goals. While China’s production capacity expansion in the legacy (mature) process sector of 28nm or higher is notable, the technological gap in advanced processes is not narrowing. The Institute for Progress (IFP), a U.S. think tank, estimated that “In 2026, the U.S. will be able to produce approximately 40 times more cutting-edge AI chips than China.”

[‘Is-Informed Letters’ for Rapid Enforcement… Rare Earth Retaliations prove Insufficient]

The tool the U.S. Department of Commerce employed this time is the ‘is-informed letter.’ This is an administrative tool that can immediately impose new licensing requirements on specific companies without formal legislative procedures, and the Trump administration has repeatedly used it as a primary means of semiconductor sanctions against China. Sources warn that companies that were supplying Hua Hong-related facilities could suffer billions of dollars in lost revenue due to this notification.

China is responding by weaponizing key minerals such as tungsten and rare earths. In 2025, it consecutively implemented export controls on five types of minerals, including tungsten and molybdenum, and seven types of rare earths, including samarium and gadolinium, strengthening its strategic response using its core resources. However, the prevailing assessment is that the rare earth card is insufficient to offset China’s structural weakness in semiconductor design and equipment.

[A Security-driven Decision to Thwart Advanced AI Chip Self-sufficiency]

The U.S. government’s move to choke off Hua Hong Semiconductor is an emergency prescription based on the judgment that China’s so-called ‘semiconductor rise’ has reached a critical tipping point. Previously, despite persistent U.S. pressure, China appeared to find a technological breakthrough by promoting SMIC’s success in 7nm mass production. However, as the U.S. Department of Commerce precision-targeted another core hub, Hua Hong Semiconductor, China’s attempt to proliferate advanced processes has been blocked by a massive wall.

In particular, the ‘is-informed letter,’ the key tool of these sanctions, demonstrates the U.S. administration’s strong will for enforcement. Bypassing complex legal procedures to implement immediate export controls under the pretext of national security reveals a powerful intent to completely block China’s technological pursuit itself. The suspension of supply by the three major U.S. equipment makers—Lam Research, Applied Materials, and KLA—who lead the global market, is effectively synonymous with halting the operation of Chinese semiconductor factories.

The point we must pay attention to is the danger of the 7nm process that China has been pursuing. This fine process goes beyond merely improving smartphone performance; it is the core for producing Artificial Intelligence (AI) chips that determine victory or defeat in modern warfare, including drones, autonomous driving, and precision-strike weapons. The firm stance of the U.S., that it cannot allow an autocratic state threatening the security of the liberal democratic camp to self-manufacture the ‘brains’ for advanced lethal weapons, is an entirely justifiable defensive mechanism.

China has shouted for technological independence while disrupting market order by injecting astronomical state subsidies. However, the semiconductor ecosystem is not a domain that a specific country can build independently. The idea that China can complete fine processes through ‘Long March’-style spiritual victory without American equipment, which combines tens of thousands of precision parts and know-how, is close to fiction. Due to this measure, Hua Hong Semiconductor has already suffered billions of dollars in losses, and this is highly likely to lead to the collapse of China’s entire semiconductor supply chain.

The Trump administration’s decision accurately struck China’s Achilles' heel ahead of a scheduled visit to China in May. This is more than a simple trade conflict; it is a battle over who holds global technological hegemony. The U.S. is executing a strategy of exhaustion, moving beyond the ban on equipment sales to even cutting off maintenance services for equipment already brought in. It is a wake-up call to the reality that even if you have the equipment, it will eventually turn into a giant pile of scrap metal if parts cannot be replaced or software cannot be updated.

While China may be able to launch a volume offensive in the low-end, general-purpose semiconductor market, it is expected to be thoroughly isolated in the advanced chip sector, the core of future industries. The global semiconductor supply chain is now being reorganized around trusted value alliances. The sanctions on Hua Hong Semiconductor are a symbolic example of how China’s ambitions crumble before the technological barriers of the free world.

Ultimately, technology can be a blessing or a disaster for humanity depending on the values of those who handle it. A technological rise under the control of the Chinese Communist Party is only a threat to world peace. The U.S. blockade is no different from a worldwide declaration that unless China complies with normal international norms, it is not qualified to enjoy the benefits of advanced technology.