For a long time (basically forever) China hasn't really invented anything of it's own. China has a large, complex, and well run espionage network responsible for stealing trade secrets from western companies. There's a great book, Disunited Nations, that talks about it in gory detail. Essentially, China will steal anything it can and build it locally. Espionage like this is generally expected (even among allies) but the scale at which China operates this is breathtaking. Majority of the large scale hacks they have done in recent history are targeting organizations with special IP (for example military technology).

So, knowing this I would assume they will simply use this system to get access to patents for the chips they need and begin fabrication themselves. This blow slows them down but doesn't stop them. To stop them, you'd need to stop their well oiled espionage machine.

They will build their own.

It was the Chinese that pushed through RISC-V at the end of the day.

They are allocating absolutely ridiculous amounts of capital towards building their own lithography expertise now.

Trump pretty much forced Biden's hand when he stuck his dick in ASMLs relationship with China. By playing that card so early Biden effectively has to cut off access to TSMC, GlobalFoundries and Samsung for it to actually stick and not just have wasted the biggest and most important trade card W.R.T semiconductors.

Slowly