China mandates 50% domestic equipment rule for chipmakers, sources say
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Advanced etching tools had been predominantly supplied in China by foreign firms, but are now being partially replaced by domestic makers like Naura.
PHOTO: REUTERS
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SINGAPORE - China is requiring chipmakers to use at least 50 per cent domestically made equipment for adding new capacity, three people familiar with the matter said, as Beijing pushes to build a self-sufficient semiconductor supply chain.
The rule is not publicly documented, but chipmakers seeking state approval to build or expand their plants have been told by the authorities in recent months that they must prove through procurement tenders that at least half their equipment is Chinese-made, the sources told Reuters.
The mandate is one of the most significant measures Beijing has introduced to wean itself off reliance on foreign technology, a push that gathered pace after the United States tightened technology export restrictions in 2023, banning sales of advanced artificial intelligence chips and semiconductor equipment to China.
While those US export restrictions blocked the sale of some of the most advanced tools, the 50 per cent rule is leading Chinese manufacturers to choose domestic suppliers even in areas where foreign equipment from the US, Japan, South Korea and Europe remain available.
Applications failing the threshold are typically rejected, though the authorities grant flexibility, depending on supply constraints, the sources said.
The requirements are relaxed for advanced chip-production lines, where domestically developed equipment is not yet fully available.
“The authorities prefer it 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.”
Chinese President Xi Jinping has been calling for a “whole nation” effort to build a fully self-sufficient domestic semiconductor supply chain that involves thousands of engineers and scientists at companies and research centres nationwide.
The effort is being made across the wide supply chain spectrum. Reuters reported in December that Chinese scientists are working on a prototype of a machine capable of producing cutting-edge chips, an outcome that Washington has spent years trying to prevent.
“Before, domestic fabs like SMIC would prefer US equipment and would not really give Chinese firms a chance,” a former employee at local equipment maker Naura Technology said, referring to the Semiconductor Manufacturing International Corporation.
“But that changed starting with the 2023 US export restrictions, when Chinese fabs had no choice but to work with domestic suppliers.”
State-affiliated entities placed a record 421 orders for domestic lithography machines and parts in 2025 worth around 850 million yuan (S$156 million), according to publicly available procurement data, signalling a surge in demand for locally developed technologies.
To support the local chip supply chain, Beijing has also poured hundreds of billions of renminbi into its semiconductor sector through the “Big Fund”, which established a third phase in 2024 with 344 billion yuan in capital.
The policy is already yielding results, including in areas such as etching, a critical chip-manufacturing step that involves removing materials from silicon wafers to carve out intricate transistor patterns, sources said.
Naura, China’s largest chip equipment group, is testing its etching tools on a cutting-edge 7nm (nanometre) production line of SMIC, two sources said. The early-stage milestone, which comes after Naura recently deployed etching tools on 14nm successfully, demonstrates how quickly domestic suppliers are advancing.
“Naura’s etching results have been accelerated by the government requiring fabs to use at least 50 per cent domestic equipment,” one of the sources told Reuters, adding that it was forcing the company to improve rapidly.
Advanced etching tools had been predominantly supplied in China by foreign firms such as Lam Research and Tokyo Electron, but these are now being partially replaced by Naura and smaller rival Advanced Micro-Fabrication Equipment (AMEC), sources say.
Naura has also proven to be a key partner for Chinese memory chipmakers, supplying 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 service after the 2023 restrictions, sources said.
China’s progress is being viewed with concern by global competitors, as foreign suppliers are squeezed 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, which was verified by Reuters.
That is translating into strong financial results. Naura’s revenue for the first half of 2025 jumped 30 per cent to 16 billion yuan. AMEC reported a 44 per cent jump in first-half revenue to 5 billion yuan.
Analysts estimate that China has now reached roughly 50 per cent self-sufficiency in photoresist-removal and cleaning equipment, a market previously dominated by Japanese firms, but now locally led 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. REUTERS
