China is quietly imposing a sweeping new requirement on its semiconductor industry, forcing chipmakers to use at least 50% domestically produced equipment when adding new manufacturing capacity, according to three people familiar with the policy. The measure, reported by Reuters, underscores Beijing’s determination to build a self-sufficient chip supply chain amid tightening U.S. technology restrictions.
The rule has not been publicly announced, but companies seeking government approval to build or expand chip plants have been instructed in recent months to demonstrate through procurement tenders that at least half of their equipment is made in China, the sources told Reuters. Applications that fail to meet the threshold are typically rejected, though regulators allow some flexibility where domestic supply remains limited. For advanced production lines, where Chinese equipment is not yet fully developed, the requirements are applied more loosely.
The mandate represents one of Beijing’s most consequential steps to reduce dependence on foreign semiconductor technology, a campaign that intensified after the United States expanded export controls in 2023. Those restrictions barred sales of advanced artificial intelligence chips and certain semiconductor manufacturing tools to China. While some of the most cutting-edge foreign equipment is already unavailable, the 50% rule is now pushing Chinese chipmakers to favor domestic suppliers even in areas where U.S., Japanese, South Korean, and European tools are still accessible.
Authorities are signaling that the current threshold may only be a stepping stone. “Authorities prefer if it is much higher than 50%,” one source told Reuters, adding that the long-term objective is for chip plants to rely entirely on Chinese-made equipment. China’s industry ministry did not respond to a request for comment, and the sources spoke on condition of anonymity because the policy is not public.
The directive fits squarely within President Xi Jinping’s call for a “whole nation” approach to building a fully self-sufficient semiconductor ecosystem, mobilizing engineers, scientists, state firms, and research institutions nationwide. Reuters has previously reported that Chinese scientists are developing a prototype machine capable of producing cutting-edge chips, an effort Washington has sought to block for years.
Industry dynamics have already shifted. Before the 2023 U.S. export controls, domestic fabs such as Semiconductor Manufacturing International Corporation (SMIC) often preferred U.S. equipment and gave limited opportunities to local suppliers, a former employee of Chinese equipment maker Naura Technology told Reuters. That changed when restrictions left Chinese fabs with little choice but to work closely with domestic firms.
Procurement data show state-affiliated entities placed a record 421 orders for domestic lithography machines and related parts this year, worth about 850 million yuan, signaling surging demand for local technology. Beijing has reinforced the push with massive financial backing, channeling hundreds of billions of yuan into the sector through the state-backed “Big Fund,” which launched a third phase in 2024 with 344 billion yuan, or roughly $49 billion, in capital.
The policy is already producing tangible results, particularly in etching, a critical manufacturing process used to carve transistor patterns into silicon wafers. Sources told Reuters that Naura, China’s largest chip equipment maker, is testing its etching tools on SMIC’s advanced 7-nanometer production line, following earlier success at the 14-nanometer node. One source said the government’s domestic-equipment mandate has accelerated Naura’s progress by forcing rapid improvement.
Foreign suppliers such as Lam Research and Tokyo Electron have long dominated advanced etching tools in China, but are now being partially displaced by Naura and smaller rival Advanced Micro-Fabrication Equipment China (AMEC), according to sources. Naura has also become a key supplier to Chinese memory chipmakers, providing etching tools for chips with more than 300 layers and developing replacement components for foreign equipment that can no longer be serviced due to U.S. restrictions.
None of the companies mentioned, including Naura, AMEC, SMIC, Lam Research, and Tokyo Electron, responded to Reuters’ requests for comment. Still, the competitive impact is becoming clear. Naura filed a record 779 patents in 2025, more than double its filings in 2020 and 2021, while AMEC filed 259, according to data from Anaqua’s AcclaimIP database verified by Reuters. Financial performance has followed, with Naura’s first-half 2025 revenue rising 30% to 16 billion yuan and AMEC’s jumping 44% to 5 billion yuan.
Analysts estimate China has now reached about 50% self-sufficiency in photoresist-removal and cleaning equipment, once dominated by Japanese firms but increasingly led by domestic manufacturers. As one industry source put it to Reuters, the local equipment market is likely to be dominated by just a handful of major players, with Naura firmly among them, marking a significant shift in the global semiconductor landscape.
