SINGAPORE, Dec 30 (Reuters) – China is requiring chipmakers to use at least 50 percent domestically-made equipment to add new capacity, three people familiar with the matter said, as Beijing seeks to build a self-sufficient semiconductor supply chain.
The rule is not publicly documented, but chipmakers seeking state approval to build or expand factories have been told by authorities in recent months that they must prove through procurement auctions that at least half of their equipment will be made in China, the people told Reuters.
The mandate is one of the most important measures Beijing has introduced to shed its reliance on foreign technology, a push that gained momentum after the US tightened restrictions on technology exports in 2023, banning sales of advanced AI chips and semiconductor equipment to China.
While US export restrictions have blocked the sale of some of the most advanced tools, the 50% rule is causing Chinese manufacturers to choose domestic suppliers even in areas where foreign equipment from the US, Japan, South Korea and Europe remains available.
Applications that do not meet the threshold are usually rejected, although authorities grant flexibility depending on supply constraints, the people said. Requirements are relaxed for advanced chip production lines where domestically developed equipment is not yet fully available.
“The authorities prefer if it is much higher than 50 percent,” a source told Reuters. “Ultimately I aim for the plants to use 100% domestic equipment.”
China’s industry ministry did not respond to a request for comment. The sources did not want to be identified because the measure is not public.
Illustrative image of semiconductor chips and Chinese flag
Chinese President Xi Jinping has called for a “nationwide” effort to build a fully self-sufficient domestic semiconductor supply chain, involving thousands of engineers and scientists from companies and research centers across the country.
The effort is being made across the spectrum of the supply chain. Reuters reported earlier this month that Chinese scientists are working on a prototype machine capable of producing cutting-edge chips, an outcome Washington has tried for years to prevent.
“Before, domestic factories like SMIC preferred US equipment and wouldn’t really give Chinese firms a chance,” said a former employee of local equipment maker Naura Technology, referring to Semiconductor Manufacturing International Corporation.
“But that changed starting with US export restrictions from 2023, when Chinese factories had no choice but to work with domestic suppliers.”
State-affiliated entities placed a record 421 orders for domestic lithography machinery and parts this year worth about 850 million yuan, according to available procurement data, signaling a surge in demand for locally developed technologies.
To support the local chip supply chain, Beijing has also poured hundreds of billions of yuan into its semiconductor sector through the “Grand Fund,” which has set a third phase in 2024 with capital of 344 billion yuan ($49 billion).
The policy is already paying off, including in areas such as etching, a critical chip-making step that involves removing material from silicon wafers to create intricate patterns of transistors, sources said.
China’s largest chip equipment group Naura is testing its etching tools on a state-of-the-art 7nm (nanometer) production line from SMIC, two sources said. The early stage, which comes after Naura recently implemented 14nm etch tools, demonstrates how quickly domestic suppliers are advancing.
“Naura’s etching results have been accelerated by the government, requiring factories to use at least 50 percent domestic equipment,” one of the people told Reuters, adding that it was forcing the company to improve quickly.
The advanced etching tools were mainly supplied in China by foreign firms such as Lam Research and Tokyo Electron, but are now being partly replaced by Naura and smaller rival Advanced Micro-Fabrication Equipment (AMEC), the sources said.
Naura has also proven to be a key partner for Chinese memory chip manufacturers, providing etching tools for advanced chips with more than 300 layers. It developed electrostatic chucks — devices that hold wafers during processing — to replace worn parts in Lam Research equipment that the company could no longer maintain after the 2023 restrictions, sources said.
Naura, AMEC, YTMC, SMIC, Lam Research and Tokyo Electron did not respond to requests for comment.
China’s progress is viewed with concern by global competitors as foreign suppliers are shut out of the Chinese market.
Naura filed a record 779 patents in 2025, more than double what it filed in 2020 and 2021, while AMEC filed 259, according to Anaqua’s AcclaimIP database and verified by Reuters.
This also translates into strong financial results. Naura’s revenue for the first half of 2025 rose 30% to 16 billion yuan. AMEC reported a 44% increase in first-half revenue to 5 billion yuan.
Analysts estimate that China has now reached about 50 percent self-sufficiency in photoresist removal and cleaning equipment, a market previously dominated by Japanese firms but now led locally by Naura.
“The domestic equipment market will be dominated by two to three major manufacturers and Naura is definitely one of them,” said a separate source.
(1 USD = 7.0053 Chinese Yuan Renminbi)
(Reporting by Fanny Potkin in Singapore and Eduardo Baptista in Beijing Editing by Miyoung Kim and Muralikumar Anantharaman)
