China's dominance in semiconductor equipment procurement is expected to face its first setback since 2021, with spending projected to decrease from $41 billion to $38 billion in 2025, according to semiconductor research firm TechInsights. This 6% decline marks a significant shift for the world's largest buyer of wafer fabrication equipment, whose purchases represented 40% of global sales in 2024. The downturn reflects mounting pressures from both market dynamics and geopolitical constraints. US export controls targeting advanced semiconductor capabilities have intensified while domestic chipmakers grapple with overcapacity in mature node segments. SMIC, China's leading foundry, has already signaled concerns about oversupply risks in this sector, where Chinese manufacturers have rapidly expanded their market share against Taiwanese competitors.

Despite these headwinds, Chinese equipment manufacturers have notably advanced domestic capability development. Naura Technology Group has emerged as the seventh-largest global equipment manufacturer, while AMEC continues to expand its international presence. However, critical gaps persist in China's semiconductor equipment ecosystem, particularly in lithography systems, where dependence on foreign suppliers like ASML remains high. TechInsights data reveals that Chinese companies supplied only 17% of testing tools and 10% of domestic assembly equipment in 2023. The spending reduction comes after a period of aggressive stockpiling prompted by US sanctions to limit Beijing's access to advanced chipmaking capabilities, especially those applicable to artificial intelligence and military applications. However, Chinese manufacturers have demonstrated resilience, with SMIC and Huawei successfully producing advanced chips through alternative, albeit more costly, manufacturing methods.