China orders chipmakers to use 50% domestic equipment as new rule

As global chip demands remain high and Beijing pushes to build a self-sufficient semiconductor supply chain, China is requiring chipmakers to use at least 50% domestically made equipment for adding new capacity.

As reported by Reuters, the rule is not publicly documented yet, but chipmakers seeking state approval to build or expand their plants have been told that they must get approvals from procurement tenders that at least half their equipment will be Chinese-made.

The new mandate is one of the most notable measures that Beijing has introduced to wean itself off reliance on foreign technology—a push that gathered pace after the U.S. tightened technology export restrictions in 2023, banning sales of advanced AI chips and semiconductor equipment to China.

While some U.S. export restrictions blocked the sale of some of the most advanced tools, the 50% rule is leading Chinese manufacturers to choose domestic suppliers even in areas where foreign equipment from the U.S., Japan, South Korea, and Europe remains available.

Applications failing the threshold are typically rejected, though authorities grant flexibility depending on supply constraints, the people said. The requirements are relaxed for advanced chip production lines, where domestically developed equipment is not yet fully available.

According to sources, China is "eventually aiming for the plants to use 100% domestic equipment."

China's 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 centers nationwide.

The effort is being made across the wide supply chain spectrum as Chinese scientists are working on a prototype of a machine capable of producing cutting-edge chips.

State-affiliated entities placed a record 421 orders for domestic lithography machines and parts this year worth around 850 million yuan, according to publicly 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 “Big Fund,” which established a third phase in 2024 with 344 billion yuan ($49 billion) in capital.

Additionally, 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.

"The domestic equipment market will be dominated by two to three major manufacturers, and Naura is definitely one of them," said a separate source

 China's progress is being viewed with concern by global competitors, as foreign suppliers are squeezed out of the China market.