China has begun mass producing domestically developed immersion deep-ultraviolet (DUV) lithography machines, a technology crucial to advanced chipmaking, a person familiar with the matter said, marking a key step forward in Beijing's drive to reduce its reliance on foreign technologies.

Shanghai Aishengna Electronic Technology Group, a little-known Chinese state-owned company, is leading the production effort after incorporating teams from top Chinese lithography startups, the source said, declining to be named due to the sensitivity of the subject.

The development represents a win for Beijing's nationwide semiconductor self-sufficiency initiative, one of President Xi Jinping's highest priorities, but will not pose an immediate commercial threat to Dutch supplier ASML.

DUV is a key chipmaking tool long dominated by ASML.

The Information, a tech industry news outlet, first reported on China's development of the tool on Monday, noting that an unidentified state-backed company in Shanghai had begun manufacturing the machines and planned to produce about 5 this year and roughly 20 in 2027. Reuters is the first to report the company's identity.

Aishengna's DUV machine is expected to require further testing and remains far from matching the Dutch firm's competing models, the source said.

Successful deployment would, however, give Chinese chipmakers an alternative source of equipment if Western governments further restrict exports or servicing of foreign lithography tools.

The Chinese-made DUV machines are expected to be delivered this year to leading Chinese chipmakers, including Semiconductor Manufacturing International Corp (SMIC), Hua Hong Semiconductor, and memory-chip maker ChangXin Memory Technologies (CXMT), The Information said, citing two people familiar with the matter.

ASML, whose shares fell more than 8% on Monday, did not immediately respond to a request for comment. SMIC, Hua Hong, and CXMT also did not respond to requests for comment.

Aishengna backed by Shanghai capital and tech

Aishengna was established in August 2023 with registered capital of 7 billion yuan ($1.0 billion), backed by just two state-owned shareholders – Shanghai Electric Holding and a subsidiary of Shanghai International Trust, according to corporate records.

Little is known about the firm, which does not have a website and has disclosed nothing publicly about its operations. The source said the company has incorporated teams from lithography startup Yuliangsheng, which had begun testing a DUV prototype last year, and Shanghai Micro Electronics Equipment (SMEE).

SMEE and Yuliangsheng, an affiliate of the Huawei-backed equipment maker SiCarrier, are deeply involved in Beijing's semiconductor self-sufficiency efforts.

Corporate and recruitment records show Aishengna and Yuliangsheng share an address in Shanghai.

Aishengna, its shareholders, SMEE, and Yuliangsheng did not respond to requests for comment.

Chasing ASML

China has been barred by the US from buying ASML's most advanced extreme-ultraviolet (EUV) lithography systems, while Dutch export controls have also restricted its access to some advanced DUV machines.

Immersion DUV machines use a layer of water between the projection lens and a silicon wafer to print smaller circuit patterns than conventional dry systems.

They are used to produce a broad range of chips and can also be pushed to manufacture more advanced semiconductors through multiple patterning, which requires repeated exposures of the same layer.

Reuters reported in December, citing sources, that China had succeeded in building a prototype of an EUV system, a tool key to building the world's most advanced chips, though it remains years from production.