A high-stakes game of geopolitical cat-and-mouse is unfolding in the semiconductor industry. On one side, the United States government maintains it has classified, hard evidence that highly restricted extreme ultraviolet (EUV) lithography technology is leaking into China. On the other, Dutch tech giant ASML—which holds a strict global monopoly on the technology—adamantly asserts that absolutely zero EUV systems exist in the country.
Remarkably, both sides are telling the truth.
The resolution to this paradox lies in the definition of “smuggling”. While it is physically and logistically impossible to sneak a fully assembled, 180-ton EUV machine past international customs, a sophisticated, state-backed network is successfully executing a “parts game”. China is not importing whole systems; it is acquiring the individual components required to build its own.
The Illusion of Compliance: The Transshipment Network
To understand how these restricted subcomponents cross borders, one must look at modern hardware diversion networks. Unlike mass-market artificial intelligence processors, a complete EUV system is essentially a massive industrial facility in a box, tracked with the precision typically reserved for nuclear material.
Because the “whole school bus” cannot be smuggled, illicit networks focus on “the candy bars”—specialized subcomponents like advanced sensors, calibration modules, and specialized optics that easily fit inside standard shipping containers.
The primary mechanism for moving these parts relies on plausible deniability and transshipment routes:
Legitimate Camouflage: Front companies place orders for restricted hardware under the guise of supplying established tech hubs with massive, pre-existing semiconductor infrastructures. When a shell company in a nation like Japan or South Korea imports specialized lithography components, the transactions appear entirely legal, allowing them to pass smoothly through customs checkpoints that primarily verify paperwork.
The Rerouting: Once the hardware legally clears customs in these intermediary nations, it enters domestic warehouses where it is broken down, repackaged, and quietly funneled across the East China Sea into mainland China. Port cities like Hong Kong often serve as the final, porous waypoints into the mainland.
Following the Financial Heat Signature
While these illicit networks excel at forging end-user certificates, they cannot hide the massive financial paper trail required to shift hundreds of millions of dollars through the global supply chain.
ASML’s own Q4 2025 investor presentation reveals a striking regional anomaly that serves as the “heat signature” for these intermediary networks:
This dramatic geographic shift occurred simultaneously with a massive surge in ASML’s total global net system sales, which jumped from 5.55 billion euros in Q3 to 7.58 billion euros in Q4.
Even though the percentage of ASML’s direct sales to China ostensibly dropped from 42% to 36% during this period—creating a persuasive illusion of regulatory compliance—the actual volume of equipment entering China directly still managed to increase by 400 million euros in a single quarter because the overall financial pie had grown so much larger. When combined with the sudden, multi-million-euro spikes in Japan and South Korea, the data strongly suggests that the side doors to China have been left wide open.
Japan’s EUV lithography equipment procurement, measured in euro value, surged 12.66-fold in the fourth quarter of 2025. However, it is unlikely that these purchases were made by Japan Advanced Semiconductor Manufacturing (JASM), TSMC’s subsidiary in Kumamoto.
TSMC did not announce plans for upgrading its second Kumamoto fab to manufacture advanced chips until February 2026, and the project received official approval in April. Construction of the facility’s shell only began in December 2025 and is not expected to be completed until 2027. Given this timeline, the sharp increase in Japan’s EUV purchases during Q4 2025 could not reasonably have been driven by JASM’s second fab project.
Rapidus announced that it secured JPY267.6 billion in February and another JPY150 billion in June 2026. Could ASML have made the sales before Rapidus completes its fundraising rounds?
ASML’s end-use breakdown offers another clue to the significant rise in South Korea’s EUV purchases in Q4 2025. While total EUV sales to the country surged, the proportion allocated to memory customers actually declined from 35% in Q3 to 30% in Q4. This suggests that the incremental demand was largely driven by logic-chip manufacturing rather than memory production.
Given the near doubling of EUV purchases in euro terms, one would expect a corresponding expansion in Samsung’s foundry business if it had been the primary buyer. Yet the major foundry-related deals and expansion announcements only surfaced this year, not last year. This timing raises questions about who was behind the Q4 purchasing surge and whether the equipment was intended for projects that had not yet been publicly disclosed.
