China Quietly Enforces 50% Domestic Equipment Rule to Accelerate Chip Self-Sufficiency

China is mandating that semiconductor manufacturers source at least 50% of equipment from domestic suppliers when building or expanding fabrication plants, sources told Reuters. The requirement is not publicly documented but has been communicated to companies during approval processes, where firms must demonstrate compliance through procurement tenders.

The policy reflects Beijing’s intensified push to reduce reliance on foreign technology following U.S. export restrictions in 2023, which limited China’s access to advanced AI chips and key manufacturing tools. While some foreign equipment from the U.S., Japan, South Korea, and Europe remains available, the rule is increasingly steering fabs toward local suppliers—even where overseas alternatives still exist.

Authorities reportedly prefer domestic content well above the threshold, with a long-term goal of 100% locally sourced equipment, though flexibility is granted for advanced production lines where Chinese tools are not yet fully developed.

The mandate is already reshaping the industry. State-linked buyers placed a record 421 orders for domestic lithography tools and components this year, totaling about 850 million yuan. Beijing has also reinforced the sector with large-scale funding, including a third phase of the state-backed “Big Fund” launched in 2024 with 344 billion yuan ($49 billion).

Domestic equipment makers are emerging as clear beneficiaries. Naura Technology is testing its etching tools on 7nm production lines at SMIC, after earlier success at 14nm. Naura and AMEC are increasingly replacing foreign suppliers such as Lam Research and Tokyo Electron in key processes.

The progress is visible in both innovation and earnings. Naura filed 779 patents in 2025, more than double its filings in 2020–2021, while AMEC filed 259 patents. In the first half of 2025, Naura’s revenue rose 30% to 16 billion yuan, and AMEC’s climbed 44% to 5 billion yuan.

Analysts estimate China has reached roughly 50% self-sufficiency in photoresist-removal and cleaning equipment—once dominated by Japanese firms. While challenges remain in advanced tools, the 50% rule is accelerating learning curves and market share gains for local suppliers, signaling a structural shift in the global semiconductor equipment landscape.