The Foreign Factor: How Global Giants Still Shape China‘s Advanced Manufacturing Supply Chain
A reality check on where foreign companies still dominate—and where Chinese suppliers are rapidly catching up.
The Reality Behind “Made in China”
China‘s advanced manufacturing sector is a $4.8 trillion ecosystem—but it’s not a purely domestic affair. Foreign companies still control critical bottlenecks in semiconductor equipment, industrial automation, robotics components, and advanced materials. At the same time, Chinese suppliers are making unprecedented gains in market share. This guide cuts through the noise to show you who really controls what—and what it means for your cross-border business decisions.
1. ASML & Semiconductor Equipment: The Ultimate Bottleneck
If there is one company that symbolizes foreign control over China‘s advanced manufacturing ambitions, it’s ASML. The Dutch giant holds a more than 95% share of the global lithography market, and its extreme ultraviolet (EUV) lithography machines—essential for producing chips below 7nm—are a monopoly, with a global market share exceeding 90%.
ASML’s strategy toward China is precise and layered: it sells older-generation DUV immersion lithography tools to Chinese fabs (which can produce chips at 28nm and above), while strictly controlling exports of EUV and certain advanced DUV models. In Q1 2026, ASML‘s sales to China fell to 19% of total revenue, down from 27% a year earlier. But this isn’t a withdrawal—it‘s a calibrated containment.
What makes ASML’s position so difficult to challenge isn‘t just the machine itself. It’s the entire ecosystem: Zeiss optics, Cymer light sources, ultra-precision motion stages, and cleanroom environments. Over 90% of these subsystems are controlled by German, U.S., and Japanese suppliers. Replacing ASML means rebuilding an entire physics-engineering system—a task measured in decades, not years.
Yet there are signs of progress. In 2025, three Chinese equipment manufacturers ranked among the world‘s top 20 by sales for the first time. Naura Technology Group jumped from 8th place in 2022 to 5th in 2025, trailing only ASML, Applied Materials, Lam Research, and Tokyo Electron. Shanghai Micro Electronics Equipment—China’s leading lithography player—secured the 20th spot. The gap is narrowing, but it remains substantial.
2. Siemens & Rockwell: The Software-Defined Moat
In industrial automation, the foreign advantage isn‘t just about hardware—it’s about ecosystems. Siemens and Rockwell Automation don‘t just sell PLCs, servos, or HMIs. They sell integrated stacks: PLC + HMI + SCADA + MES + industrial cloud platforms.
Siemens, in particular, has deep roots in China. It operates more than 60 businesses in the country, including 11 national-level green factories. In March 2025, Siemens held a “China Acceleration 2.0” event in Shanghai, launching 18 new products for the Chinese market—16 of which were fully developed by local R&D teams. This isn‘t a foreign company trying to break into China; it’s a foreign company that has become part of China‘s industrial fabric.
The moat is software and standards. Siemens’ TIA Portal and Rockwell‘s FactoryTalk platforms define how factories are designed, monitored, and optimized. Even if a Chinese PLC matches the hardware specs, it still needs to speak the same protocol language to be integrated into a customer’s existing production line. As industry analysts note, “ecological lock-in is more lethal than performance gaps.”
However, change is underway. Chinese companies like Inovance Technology are gaining share in OEM-type markets (machine tools, electronics equipment). In 2025, Inovance‘s general-purpose servo business alone generated nearly 7 billion yuan in revenue. But in project-type markets—power generation, chemicals, municipal infrastructure—where long-cycle validation and safety certifications are required, foreign brands still dominate.
3. The “Big Four” in Robotics: Reducer–Servo–Controller Iron Triangle
In industrial robotics, the “Big Four”—Fanuc (Japan), ABB (Switzerland), Kuka (Germany), and Yaskawa (Japan)—have long dominated both complete robot manufacturing and systems integration. But their real control lies upstream, in three critical components: reducers, servos, and controllers.
- Reducers: Harmonic Drive and Nabtesco (Japan) dominate the precision reducer market. China‘s Leader Harmonious Drive has made breakthroughs in harmonic reducers, but in high-load, long-life RV reducers, the gap with Nabtesco remains significant.
- Servo systems: Yaskawa, Panasonic, and Sanyo (Japan) lead globally. Chinese players like Inovance and Estun have achieved mass production in mid-to-low-end servos, but still struggle with response speed, dynamic rigidity, and multi-axis coordination in high-end applications.
- Controllers: This is the greatest weakness. Chinese manufacturers can develop the hardware, but the core IP—real-time operating systems, trajectory planning algorithms, vibration suppression modules—still relies on imported licenses or reverse engineering.
Here‘s the turning point: in 2025, Chinese industrial robot brands surpassed foreign brands in domestic market share for the first time, reaching over 56%. Estun, a Nanjing-based company, led the market with a 10.6% share (including all foreign and domestic brands), marking its eighth consecutive year as the No. 1 Chinese robot brand. Foreign brands are losing share in volume, but they still command higher margins in premium segments.
📊 Key Milestone: 2025
Chinese industrial robot brands achieved >56% domestic market share for the first time, with Estun leading at 10.6%.
4. The Hidden Layer: German “Mittelstand” & Advanced Materials
The most overlooked—and perhaps most critical—foreign control point is in materials and precision components. This is the domain of Germany‘s “Mittelstand” (hidden champions): small-to-medium enterprises that dominate niche global markets.
Consider these examples:
- Electronic specialty gases (ultra-high purity), photoresists, high-precision ceramic guides, and oxygen-free copper for vacuum chambers—over 90% of these are imported from Germany, Japan, and the U.S.
- Photoresists are particularly concerning: KrF photoresist localization is only 1-2%, ArF photoresist is below 1%, and i-Line is about 10%.
- Semiconductor material localization overall remains below 20% in high-difficulty areas like 12-inch silicon wafers, photoresists, electronic gases, and wet chemicals.
This creates a “resources available, technology embargoed” paradox. China has fluorite reserves (the raw material for fluoropolymers), but the purification and etching-grade application technologies are monopolized by Japanese firms like Daikin and Kanto Denka. A single missing consumable can halt an entire production line.
German machine tools present a similar challenge. Their thin-wall structural designs aren‘t just about weight reduction—they’re based on decades of vibration modal analysis, thermal deformation compensation, and material damping data that Chinese manufacturers don‘t have. This is why high-end Chinese CNC machines still suffer from precision drift during long continuous operations.
5. The Real Progress of Domestic Substitution
The narrative of “foreign dominance” is incomplete without acknowledging genuine domestic substitution progress. Here‘s where things stand as of 2026:
| Sector | 2021 Localization | 2025 Localization | Change |
|---|---|---|---|
| Semiconductor Front-End Equipment (overall) | 10% | 21% | +11pp |
| Etching Equipment | 10% | 37% | +27pp |
| Cleaning Equipment | 23% | 30% | +7pp |
| Semiconductor Back-End Equipment (packaging) | 19% | 36% | +17pp |
| Industrial Robots (domestic brands) | ~40% | 56%+ | +16pp |
Key takeaways:
- Semiconductor front-end equipment localization more than doubled from 10% in 2021 to 21% in 2025.
- Etching equipment—a critical process step—jumped from 10% to 37% localization.
- Back-end packaging equipment reached 36% localization, up from 19%.
- Industrial robots: domestic brands surpassed 56% market share in 2025.
This progress is having a real impact on foreign suppliers. In fiscal 2025 (ending March 2026), Japan‘s top five semiconductor equipment makers saw their combined China sales fall 12% year-on-year—the first decline ever. Tokyo Electron’s China revenue share dropped from a peak of 50% in mid-2024 to just 27% in Q1 2026. ASML‘s China share also fell from 27% to 19% in Q1 2026.
⚠️ The Big Picture
Foreign dominance is eroding in volume segments but remains entrenched in premium, high-margin, and ecosystem-dependent areas. The replacement challenge has shifted from “can China make it?” to “can China make it reliably and at scale?”
6. What This Means for Your Business
If you‘re an overseas company considering a partnership, supply agreement, or investment in China’s advanced manufacturing sector, here‘s what this dual reality means for you:
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Conclusion: Know the Landscape, Know Your Partner
China‘s advanced manufacturing supply chain is a dual-track system. Foreign giants—ASML, Siemens, Fanuc, and the German Mittelstand—still control critical bottlenecks in semiconductor equipment, industrial software, robotics components, and advanced materials. At the same time, Chinese suppliers are making unprecedented gains, with domestic brands now exceeding 56% of the industrial robot market and semiconductor equipment localization doubling in four years.
This isn’t a story of “foreign versus domestic.” It‘s a story of interdependence and transition. The companies that succeed in this market will be those that understand both sides of the equation—and that start every partnership with rigorous due diligence.
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📚 References
- China AET. (June 2026). Japanese Semiconductor Equipment Sales to China Decline for First Time.
- MIR Databank. (2026). China Semiconductor Equipment Localization Rate Data (2021–2025).
- MIR Databank. (January 2026). China Industrial Robot Market Share 2025.
- China Daily / Qiushi Theory. (February 2026). China Narrows Semiconductor Equipment Gap.
- Nanjing Investment Promotion Bureau. (January 2026). Estun Maintains No. 1 Market Share for 8 Consecutive Years.
- ITIF Hamilton Index. (2026). China’s Dominance in Advanced Industries.
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