China is quietly requiring semiconductor manufacturers to use at least 50 per cent domestically made equipment when adding new production capacity, according to three people familiar with the matter, in one of Beijing’s most forceful yet moves to build a self-sufficient chip supply chain and reduce reliance on foreign technology.
The requirement is not publicly documented, but chipmakers seeking state approval to build or expand fabrication plants have in recent months been instructed by authorities to demonstrate—through procurement tenders—that at least half of their equipment purchases will come from Chinese suppliers, the people said. Applications that fail to meet the threshold are typically rejected, though regulators allow some flexibility where supply constraints exist.
The mandate marks a significant escalation in China’s push to localise its semiconductor industry, an effort that intensified after the United States tightened export controls in 2023, cutting off sales of advanced artificial intelligence chips and key manufacturing tools to China. While those restrictions primarily targeted the most sophisticated equipment, the new 50 per cent rule is reshaping purchasing decisions across a much broader range of tools, even where foreign alternatives from the United States, Japan, South Korea and Europe remain available.
“Authorities prefer if it is much higher than 50 per cent,” one source said. “Eventually, they are aiming for the plants to use 100 per cent domestic equipment.”
China’s Ministry of Industry and Information Technology did not respond to a request for comment. The sources requested anonymity because the policy has not been formally announced.
The requirement underscores President Xi Jinping’s call for a “whole nation” effort to achieve full semiconductor self-sufficiency, mobilising thousands of engineers, researchers and companies across the country. Beijing sees chips as a strategic vulnerability amid intensifying technology competition with Washington, and has signalled that dependence on foreign suppliers—especially in critical manufacturing steps—must be reduced as quickly as possible.
In practice, the rule has compelled Chinese chipmakers to favour local suppliers even in segments long dominated by overseas firms. While regulators have relaxed the requirement for the most advanced production lines—where domestically developed tools remain incomplete—the pressure to localise is being felt across mature and mid-range nodes, which still account for a large share of China’s chip output.
“Before, domestic fabs like SMIC would prefer US equipment and would not really give Chinese firms a chance,” said a former employee at Beijing-based Naura Technology Group, referring to Semiconductor Manufacturing International Corporation, China’s largest contract chipmaker. “But that changed starting with the 2023 US export restrictions, when Chinese fabs had no choice but to work with domestic suppliers.”
The shift is already visible in procurement data. State-affiliated entities placed a record 421 orders for domestically produced lithography machines and parts this year, worth about 850 million yuan, according to publicly available tender records. The surge highlights growing confidence—backed by policy pressure—in local alternatives, even in areas where Chinese tools have historically lagged global peers.
Beijing has reinforced the push with heavy financial backing. Through the National Integrated Circuit Industry Investment Fund, known as the “Big Fund”, the government has channelled hundreds of billions of yuan into the sector. A third phase launched in 2024 raised 344 billion yuan (about US$49 billion), aimed at supporting equipment makers, materials suppliers and advanced manufacturing research.
That investment is beginning to yield tangible results, particularly in etching, a critical manufacturing step in which materials are selectively removed from silicon wafers to create the fine patterns that form transistors. Etching tools are among the most complex pieces of chipmaking equipment and have long been supplied in China by foreign firms such as US-based Lam Research and Japan’s Tokyo Electron.
Naura, China’s largest chip equipment maker, is now testing its etching tools on a 7-nanometre production line at SMIC, according to two people familiar with the matter. The trial follows the successful deployment of Naura’s etching tools on SMIC’s 14-nanometre lines and marks a significant milestone for domestic suppliers moving closer to the leading edge of manufacturing.
“Naura’s etching results have been accelerated by the government requiring fabs to use at least 50 per cent domestic equipment,” one of the people said, adding that the mandate has forced equipment makers to iterate and improve at an unusually rapid pace.
Smaller rivals are also benefiting. Advanced Micro-Fabrication Equipment (AMEC), another leading Chinese supplier, has expanded its footprint as local fabs replace some imported tools with domestic alternatives. Sources say Lam Research and Tokyo Electron equipment is increasingly being supplemented—or partially replaced—by tools from Naura and AMEC, particularly in non-leading-edge production.
Naura has also become a key partner for China’s memory chipmakers. The company now supplies etching tools capable of producing advanced memory chips with more than 300 layers, a level of complexity once thought to be beyond the reach of domestic suppliers. It has also developed electrostatic chucks—components that hold wafers steady during processing—to replace parts in Lam Research tools that could no longer be serviced after the 2023 US restrictions, the sources said.
Naura, AMEC, SMIC, Lam Research and Tokyo Electron did not respond to requests for comment.
China’s progress is being closely watched—and increasingly viewed with concern—by global competitors, who face shrinking access to one of the world’s largest semiconductor markets. Even where foreign suppliers are not explicitly banned, the domestic-use mandate is squeezing them out of new capacity projects, reducing future sales and weakening long-term relationships with Chinese customers.
The rapid pace of innovation among Chinese equipment makers is reflected in patent filings. Naura submitted a record 779 patent applications in 2025, more than double its filings in 2020 and 2021 combined, according to data from Anaqua’s AcclaimIP database. AMEC filed 259 patents over the same period, also a sharp increase.
The technological momentum is translating into strong financial performance. Naura reported that revenue in the first half of 2025 jumped 30 per cent year-on-year to 16 billion yuan, while AMEC posted a 44 per cent rise to 5 billion yuan. Analysts attribute much of that growth to surging domestic demand driven by policy mandates and state-backed expansion plans.
Industry analysts estimate that China has now achieved roughly 50 per cent self-sufficiency in photoresist-removal and cleaning equipment—another critical segment of chip manufacturing that was previously dominated by Japanese firms. Domestic suppliers, led by Naura, are now taking a growing share of that market, further reducing China’s dependence on imports.
“The domestic equipment market will be dominated by two to three major manufacturers, and Naura is definitely one of them,” said a separate source familiar with the sector.
Still, significant challenges remain. China continues to lag in the most advanced lithography systems required for cutting-edge logic chips, and domestic alternatives to extreme ultraviolet (EUV) tools remain years away from commercial readiness. For now, authorities appear willing to relax localisation requirements for the most advanced lines to avoid slowing progress at the technological frontier.
Yet the direction of policy is clear. By embedding domestic-equipment requirements into the approval process for new capacity, Beijing is effectively hard-wiring self-sufficiency into the future growth of its semiconductor industry. Even if geopolitical tensions ease, the incentives for Chinese fabs to return to heavy reliance on foreign suppliers are diminishing.
For global chip equipment makers, the shift signals a structural change rather than a temporary disruption. For China, it represents a calculated bet that sustained policy pressure, massive investment and a protected home market can close technology gaps once considered insurmountable—and, over time, deliver a fully domestic semiconductor supply chain.
