China is requiring semiconductor manufacturers to use at least 50% domestically produced equipment when adding new production capacity (30/12), sources told Reuters. Authorities have informed chipmakers seeking state approval that they must demonstrate through procurement tenders that half of their equipment will be Chinese-made, although the rule is not publicly documented.

Policy Aims to Build a Self-Sufficient Semiconductor Supply Chain

The mandate is part of Beijing’s push to reduce reliance on foreign technology. The policy gained urgency after U.S. export restrictions in 2023 blocked sales of advanced AI chips and semiconductor equipment to China. Applications failing the 50% threshold are generally rejected, though officials may allow flexibility for advanced production lines where domestic tools are not yet fully available.

“Authorities prefer if it to be much higher than 50%,” one source told Reuters. “Eventually, they are aiming for the plants to use 100% domestic equipment.”

Domestic Suppliers Gain from Policy Changes

Chinese manufacturers are increasingly turning to local suppliers due to the U.S., Japanese, South Korean, and European export restrictions. State-affiliated entities placed a record 421 orders for domestic lithography machines and parts this year, valued at roughly 850 million yuan, reflecting strong demand for locally developed technology.

“Before, domestic fabs like SMIC would prefer U.S. equipment and would not really give Chinese firms a chance,” a former Naura Technology employee said. “But that changed starting with the 2023 U.S export restrictions, when Chinese fabs had no choice but to work with domestic suppliers.”

Surge in Domestic Innovation and Technology Development

The 50% domestic equipment mandate is accelerating local technological advancements. Naura is testing etching tools on SMIC’s 7nm production line, following earlier deployment on 14nm chips. Advanced Micro-Fabrication Equipment (AMEC) is also emerging as a key domestic supplier.

Patent filings reflect rapid innovation: Naura filed 779 patents in 2025, more than double its filings in 2020 and 2021, while AMEC filed 259 patents. Financially, Naura’s first-half 2025 revenue rose 30% to 16 billion yuan, and AMEC reported a 44% increase to 5 billion yuan.

Market Impact and Global Implications

China has reached approximately 50% self-sufficiency in photoresist-removal and cleaning equipment, a market previously led by Japanese firms. Sources say the domestic equipment market will likely be dominated by two to three major manufacturers, with Naura among the leaders.

Foreign suppliers are being squeezed out of the Chinese market, causing concern among global competitors.

PHOTO: SHUTTERSTOCK

This article was created with AI assistance.