Overnight, the dynamics of the chip war have shifted.
No one expected that a game concerning chips would completely change direction in just a few days.
Washington has just revoked TSMC’s “free pass” for its Nanjing factory, requiring that any U.S.-controlled semiconductor tools shipped to Nanjing must apply for separate licenses. TSMC had to issue a statement acknowledging that its VEU authorization will be revoked by December 31 of this year.
However, the joy in the U.S. lasted less than 24 hours, as six announcements from China’s Ministry of Commerce shocked the global semiconductor community—China is implementing export controls on rare earths and related technologies. The new regulations require that any foreign products containing more than 0.1% Chinese rare earth components must be approved by China before re-export.
A sword strike!
Who is affected by the lithography machine?
The Dutch giant ASML, the only company capable of producing the most advanced EUV lithography machines, has instantly become the primary victim.
An EUV lithography machine contains tens of thousands of parts, among which core components such as lasers, magnetic levitation systems, and optical lenses must use heavy rare earths like neodymium, dysprosium, and terbium. China controls 70% of global rare earth mining, 90% of separation and purification, and 93% of magnet manufacturing capabilities.
ASML’s dependence on rare earths is far greater than the outside world imagines; now, the delivery of each machine could be delayed by weeks or even months due to approval processes.
ASML is urgently lobbying the Dutch government and U.S. allies, trying to seek “specific product exemptions.” However, China’s rule design is extremely tight, effectively closing off the possibility of circumventing controls through third-party countries.
Interestingly, just a few months ago, ASML was worried about the “tariff shockwave”—its new orders for the first quarter of 2025 amounted to only 3.94 billion euros, a sharp drop of 44.4% compared to the fourth quarter of 2024.
ASML’s President and CEO, Peter Wennink, stated at that time: “The recently announced tariff policies have increased uncertainty in the macro environment.” He probably did not expect that even greater uncertainties were yet to come.
TSMC’s Double Dilemma
TSMC is now truly caught in a bind.
The U.S. does not allow it to freely supply key equipment to Chinese factories, while China’s new regulations may affect its ability to export chips produced with Chinese rare earths to the U.S.—because most of the rare earth materials used by TSMC come from China.
TSMC’s Nanjing factory accounts for only about 3% of its total capacity, but U.S. restrictions will undoubtedly increase the risk of operational disruptions at that factory.
What makes TSMC even more anxious is that China’s new export controls mean that if it wants to export chips to the U.S., it must first obtain export permission from Chinese authorities. In other words, China can directly influence the stability of the supply chain for the U.S. AI industry by blocking exports.
SMIC: The Big Winner in the Rise of Domestic Semiconductors
In the context of intensifying global semiconductor competition, SMIC, as China’s leading foundry enterprise, is ushering in a new round of development opportunities.
According to industry data, SMIC’s capacity utilization rate will reach 92.5% in the second quarter of 2025, with mature processes of 28nm and above contributing 78% of revenue. Particularly in the automotive-grade chip sector, the yield rate remains at a high level of 92%, with order schedules extending to the first quarter of 2026.
In the materials and packaging segments, the pace of domestic production is also accelerating. Nanda Optoelectronics’ ArF photoresist has been certified by SMIC, and Tongcheng New Materials has over 30% market share in KrF photoresist, pushing the overall domestic photoresist localization rate to exceed 40% this year.
Although still constrained in cutting-edge equipment like extreme ultraviolet lithography (EUV), SMIC’s advantages in advanced processes are gradually becoming apparent. With the launch of Huawei’s Ascend series AI chips and the explosion of domestic computing power demand, SMIC’s potential in advanced process foundry is expected to be further activated.
Reconstruction and Future of the Global Chip Chain
After the introduction of China’s new rare earth regulations, the vulnerabilities of the Western semiconductor industry have been laid bare.
Samsung is attempting to replace neodymium-iron-boron with samarium-cobalt magnets, but costs have surged by 40%; Intel’s Arizona factory has only 90 days’ worth of rare earth polishing material inventory. The South Korean economic department is even trying to negotiate a “livelihood use exemption,” but China has clearly stated that semiconductor manufacturing is not included.
Although the U.S. has rare earth resources, it lacks a complete processing industry chain. According to the U.S. Geological Survey, its domestic rare earth refining capacity meets only 15% of domestic demand. The CEO of U.S. rare earth company Lynas admitted: “We can mine rare earths, but without China’s tiered extraction technology, it’s like having rice but no rice cooker.”
This chip game teaches us: in the era of globalization, those who seek to monopolize technology alone will ultimately suffer the consequences.
The Chinese semiconductor industry is shifting from “passive response” to “active breakthrough.” With advantages in production capacity, policy support, and industry chain collaboration, SMIC is bound to occupy a more important position in the future semiconductor industry landscape.
Meanwhile, companies like TSMC and ASML must face a new reality: without the release of Chinese rare earths, the global chip industry chain cannot operate normally.
This time, the rules of the chip war have changed.