China Requires Chipmakers to Source 50% Equipments Locally: Sources

Key Highlights

• China is requiring chipmakers to source at least 50% of equipment domestically for new or expanded fabs.
• The move accelerates Beijing’s drive for semiconductor self-sufficiency amid US export curbs.
• Local equipment makers such as Naura and AMEC are emerging as key beneficiaries.

China has started enforcing a requirement that semiconductor manufacturers use a minimum of 50 per cent domestically produced equipment when adding new production capacity, as Beijing intensifies efforts to build a self-reliant chip supply chain.

Unwritten Rule Reshapes China’s Chip Expansion Plans

Chipmakers seeking government approval for new fabs or plant expansions have been instructed to demonstrate through procurement tenders that at least half of their equipment purchases are sourced from Chinese suppliers.

While the policy has not been publicly announced, applications that fail to meet the threshold are typically rejected, the sources said.

Chinese authorities allow limited flexibility where local alternatives are unavailable, particularly for advanced manufacturing lines that still depend on foreign technology.

Export Controls Accelerate Beijing’s Self-Reliance Push

The new requirement marks one of the most aggressive steps China has taken to reduce reliance on overseas semiconductor equipment, following tighter US export controls imposed in 2023 that restricted access to advanced AI chips and manufacturing tools.

While American restrictions blocked some high-end technologies outright, the domestic sourcing rule goes further by nudging manufacturers toward Chinese suppliers even when foreign alternatives from the US, Japan, South Korea, or Europe remain accessible.

Authorities are aiming well beyond the current benchmark. “Fifty per cent is the minimum,” one source said, adding that the long-term objective is for fabs to rely almost entirely on domestic equipment.

‘Whole-Nation’ Strategy Takes Shape

President Xi Jinping has repeatedly called for a “whole-nation” effort to build an independent semiconductor ecosystem, mobilising state-owned enterprises, research institutes and private firms.

That push spans the entire supply chain. Earlier this month, Chinese researchers were reported to be developing prototype tools capable of producing advanced chips, an outcome Washington has spent years trying to prevent.

Industry insiders say the shift has been stark. Before US restrictions, major Chinese fabs such as Semiconductor Manufacturing International Corporation (SMIC) preferred foreign equipment. That preference faded after access tightened in 2023, forcing closer collaboration with domestic suppliers.

Local Equipment Makers Gain Ground

State-linked entities placed a record 421 orders for domestically produced lithography machines and components this year, worth roughly 850 million yuan, according to procurement data cited by Reuters, highlighting a significant surge in demand for local technology.

Furthermore, Beijing has also funnelled hundreds of billions of yuan into the sector through its national semiconductor investment vehicle, known as the “Big Fund,” which launched a third phase in 2024 with capital of 344 billion yuan.

Winners Emerge as Foreign Firms Lose Share

The policy is already delivering tangible results. In etching, one of the most complex steps in chipmaking. China’s largest equipment maker Naura is testing tools on SMIC’s advanced 7-nanometre production line, after earlier success at 14nm, according to people familiar with the trials.

Government-backed demand has accelerated development timelines, forcing domestic suppliers to rapidly improve performance.

Companies such as Naura and rival Advanced Micro-Fabrication Equipment (AMEC) are beginning to displace long-dominant foreign players, including Lam Research and Tokyo Electron, in parts of the Chinese market.

Naura has also developed replacement components for foreign tools that can no longer be serviced due to sanctions, helping Chinese fabs maintain operations.

Patents, Revenues Signal Structural Shift

China’s equipment champions are backing up technological progress with commercial gains. Naura filed a record 779 patents in 2025, more than double its filings earlier in the decade, while AMEC submitted 259, according to data verified by Reuters.

Financial performance has followed. Naura’s revenue jumped 30 per cent in the first half of 2025 to 16 billion yuan, while AMEC reported a 44 per cent rise to 5 billion yuan.

Analysts estimate China has now achieved around 50 per cent self-sufficiency in photoresist-removal and cleaning equipment, segments once dominated by Japanese suppliers. “The domestic market is consolidating around a few major players,” one industry source said. “Naura is clearly positioned to be among the long-term winners.”