China is intensifying its efforts to overcome United States technology curbs by redirecting its massive semiconductor investment program to plug critical gaps in its chip supply chain. The country’s flagship initiative, the National Integrated Circuit Industry Investment Fund—commonly known as the Big Fund—is in its third phase, known as Big Fund III. It is now steering capital more aggressively toward the development of lithography tools and electronic design automation software, areas seen as China’s most pressing weaknesses.
This shift comes against the backdrop of a deepening technology rivalry between Washington and Beijing that has grown into a modern geopolitical flashpoint. At the heart of the conflict is the global semiconductor industry, a sector that underpins everything from smartphones to advanced military systems. Over the last decade, the United States has sought to contain China’s technological rise by tightening export restrictions on key chipmaking tools and design software. The strategy aims to slow China’s access to high-end chips and prevent them from developing competitive advantages in artificial intelligence and next-generation computing.
The tensions trace back to the broader US-China economic relationship. After decades of globalization, the two powers became deeply entwined, with China emerging as the world’s top manufacturing hub and the United States serving as a driver of technological innovation and global finance. However, growing strategic distrust and concern over national security have transformed that once-symbiotic relationship into a contest for supremacy in critical technologies. The Trump administration first imposed tough measures targeting Chinese tech giants like Huawei. The Biden administration has doubled down, tightening export bans and securing cooperation from allies such as the Netherlands and Japan to cut off China from advanced chipmaking tools and expertise.
For China, these moves have underscored a vulnerability it can no longer ignore. While its domestic chipmakers have made headway in producing mature semiconductors, the country still lags far behind when it comes to leading-edge chips. A particular pain point is lithography equipment, especially the extreme ultraviolet (EUV) machines produced by Dutch company ASML. Without these, China cannot manufacture chips at the cutting-edge nodes that power the latest AI processors or advanced defense systems.
The Big Fund’s latest strategy is now pouring resources into companies like Shanghai Micro Electronics Equipment, which leads China’s efforts to develop domestic lithography machines. On the design side, China also faces hurdles from US curbs on advanced EDA software, the tools essential for planning and verifying complex chip architectures. Domestic firms like Empyrean Technology stand to benefit from increased funding as China races to build an indigenous design ecosystem.
There are also signs of broader restructuring. Fund managers are reportedly encouraging mergers and acquisitions to consolidate China’s fragmented chip sector into stronger players that can better compete on the world stage. While the third phase of the Big Fund is targeting nearly $50 billion, it has so far secured only part of this amount. Previous phases, which spread money widely across the industry, delivered mixed results. This time, authorities appear more cautious, aiming to direct capital toward fewer, more strategic bets.
The implications of China eventually breaking through US technology restrictions could reshape global power dynamics. Should Chinese firms succeed in building competitive lithography and EDA industries, Washington’s leverage would be severely eroded. It could also accelerate the decoupling of global technology ecosystems, as China forges a supply chain less dependent on Western firms. This may impact everything from pricing and availability of chips worldwide to the alignment of smaller nations that find themselves pressured to choose sides.
The United States argues its chip restrictions are necessary to protect national security, citing fears that advanced semiconductors could fuel China’s military modernization. Yet critics point to a contradiction. By wielding trade restrictions as a tool of geopolitical rivalry, Washington risks undercutting its own long-held image as a champion of free markets and economic liberalism. Global trade norms and institutions have traditionally rested on the premise of open competition and non-discrimination. The aggressive use of export controls invites charges of hypocrisy, particularly from developing countries that now worry they could one day be targeted in similar fashion.
Moreover, there is a question of long-term effectiveness. Historically, broad attempts to block technological progress have struggled to hold back determined rivals. The United States itself once faced export controls on technologies it sought during its own industrial ascent. Over time, embargoed nations often find ways to innovate or develop alternative suppliers, sometimes at great cost but also with strategic payoff. China’s state-led drive toward semiconductor independence is precisely such a response.
As the chip war grinds on, it is shaping not just the economic policies of the world’s two largest economies but also the legal and philosophical foundations of global trade. The outcome will determine who leads in the next wave of digital technologies—and perhaps whether the principles of open markets can survive in an era increasingly defined by strategic rivalry.
