SINGAPORE, Dec 30 (Reuters) – China is requiring chipmakers to use at least 50% domestic equipment to add new production capacity as Beijing pushes to build a self-sufficient semiconductor supply chain, three people familiar with the matter said.
The rule is not publicly documented, but in recent months chipmakers seeking state approval to build or expand factories have been told by authorities that they must prove through procurement tenders that at least half of their equipment will be made in China, people familiar with the matter told Reuters.
The authorization is one of the most important steps Beijing has taken to wean itself off dependence on foreign technology, a move that has accelerated after the United States tightened technology export restrictions in 2023 and banned the sale of advanced artificial intelligence chips and semiconductor equipment to China.
While U.S. export restrictions have hampered sales of some of the most advanced tools, the 50 percent rule has led Chinese manufacturers to choose domestic suppliers even in areas where foreign equipment from the United States, Japan, South Korea and Europe is still available.
While authorities grant flexibility based on supply constraints, applications that don’t meet the threshold are typically rejected, people familiar with the matter said. For advanced chip production lines, where domestic equipment is not fully available, the requirements will be relaxed.
“The authorities would prefer much higher than 50%,” a source told Reuters. “Ultimately they aim to have factories using 100% domestic equipment.”
China’s Industry Ministry did not respond to a request for comment. The sources spoke on condition of anonymity because the measure is not public.
Semiconductor chip and Chinese flag illustration picture
Chinese President Xi Jinping has been calling for a “nationwide effort” to establish a fully self-sufficient domestic semiconductor supply chain involving thousands of engineers and scientists at companies and research centers across the country.
This effort is taking place across a wide range of supply chains. Reuters reported earlier this month that Chinese scientists were developing a prototype of a machine capable of producing cutting-edge chips, an outcome that Washington has tried to block for years.
“In the past, domestic fabs like SMIC preferred American equipment and would not really give Chinese companies a chance,” a former employee of local equipment maker Northern Huachuang Technology said of SMIC.
“But things changed starting with U.S. export restrictions in 2023, when Chinese fabs had no choice but to work with domestic suppliers.”
According to public procurement data, state-owned enterprises placed a record 421 orders for domestically produced photolithography machines and parts this year, worth about 850 million yuan, indicating a surge in demand for locally developed technology.
In order to support the local chip supply chain, Beijing has also injected hundreds of billions of yuan into the semiconductor industry through the “big fund”. The third phase of the fund was established in 2024 with a capital of 344 billion yuan ($49 billion).
Sources say the policy is already yielding results, including in areas such as etching, a key chip-making step that involves removing material from silicon wafers to carve out complex patterns of transistors.
China’s largest chip equipment group Northern Huachuang is testing its etching tools on Semiconductor Manufacturing International Corporation’s cutting-edge 7nm (nanometer) production line, two sources said. This early milestone follows Naura’s recent success in deploying etch tools at 14nm, demonstrating how quickly domestic suppliers are progressing.
“The government’s requirement for fabs to use at least 50% domestic equipment accelerated Naura’s etching results,” a person familiar with the matter told Reuters, adding that this forced the company to improve quickly.
Advanced etching tools are mainly supplied in China by foreign companies such as Lam Research and Tokyo Electron, but are now partly replaced by Naura and smaller rival Advanced Microfabrication Equipment (AMEC), sources said.
Northern Huachuang has also proven to be an important partner for Chinese memory chip manufacturers, providing etching tools for advanced chips with more than 300 layers. The company developed electrostatic chucks, devices that hold wafers during processing, to replace worn parts in Lam Research equipment that the company will no longer service after the 2023 restrictions, sources said.
Naura, AMEC, YTMC, SMIC, Lam Research and Tokyo Electron did not respond to requests for comment.
Global rivals are concerned about China’s progress as foreign suppliers are squeezed out of the Chinese market.
Naura filed for a record 779 patents in 2025, more than double the number filed in 2020 and 2021, while AMEC filed for 259 patents, according to Anaqua’s AcclaimIP database and verified by Reuters.
This also translated into strong financial results. Northern Huachuang’s revenue in the first half of 2025 will increase by 30%, reaching 16 billion yuan. Micron announced that its revenue in the first half of the year increased by 44% to RMB 5 billion.
Analysts estimate that China is now about 50% self-sufficient in photoresist removal and cleaning equipment, a market previously dominated by Japanese companies but now dominated by Naura.
Another source said, “The domestic equipment market will be dominated by two to three major manufacturers, and Nanpu is definitely one of them.”
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(Reporting by Fanny Potkin in Singapore and Eduardo Baptista in Beijing Editing by Miyoung Kim and Muralikumar Anantharaman)
