China is tightening its push for technological self-reliance by requiring semiconductor manufacturers to use at least 50% domestically produced equipment when adding new production capacity, according to people familiar with the policy. The directive, not publicly documented, is part of Beijing’s broader effort to build an independent semiconductor supply chain in response to escalating U.S. export restrictions.

A Strategic Shift Toward Domestic Technology

Chipmakers seeking state approval to build or expand fabrication plants must now prove through procurement tenders that at least half of their equipment is sourced from Chinese suppliers, the sources told Reuters. Proposals that fall short of the threshold are often rejected, although regulators allow some flexibility when domestic supply is limited, particularly for advanced chipmaking processes.

Officials reportedly encourage even higher targets. “Authorities prefer if it is much higher than 50%. Eventually, they are aiming for plants to use 100% domestic equipment,” one source said.

The rule marks one of Beijing’s most ambitious steps to reduce reliance on foreign technology. Since Washington’s 2023 ban on exports of advanced AI chips and semiconductor manufacturing tools to China, domestic producers have turned increasingly to local suppliers even in areas where foreign alternatives remain available.

Building a “Whole Nation” Semiconductor Drive

President Xi Jinping has repeatedly called for a “whole nation” effort to achieve self-sufficiency in semiconductors, mobilising thousands of engineers, researchers and manufacturers. Earlier this month, Reuters reported that Chinese scientists are developing a prototype chipmaking machine capable of producing advanced semiconductors a development the United States has long sought to prevent.

Previously, major chipmakers such as Semiconductor Manufacturing International Corporation (SMIC) preferred U.S. equipment, giving limited opportunities to local firms. However, the 2023 export restrictions forced domestic fabs to collaborate with Chinese suppliers like Naura Technology and Advanced Micro-Fabrication Equipment (AMEC).

State-affiliated entities placed a record 421 orders for local lithography equipment and components in 2025, worth about 850 million yuan. Beijing has also expanded financial support through its “Big Fund,” which launched a third phase in 2024 worth 344 billion yuan ($49 billion) to boost local semiconductor capacity.

Local Firms Emerge as Key Beneficiaries

The new rule is already reshaping the industry. Naura, China’s largest chip equipment maker, is testing its etching tools on SMIC’s 7nm production line after successfully deploying them for 14nm chips. The company’s progress highlights how policy pressure is driving rapid innovation.

Foreign suppliers such as Lam Research and Tokyo Electron, once dominant in China’s etching market, are now being replaced by Naura and AMEC. Naura has also begun producing electrostatic chucks to replace worn components in foreign equipment that can no longer be serviced due to export bans.

Naura filed a record 779 patents in 2025 more than double its total in 2020 and 2021 while AMEC filed 259, according to Anaqua’s AcclaimIP database. Naura’s revenue surged 30% in the first half of 2025 to 16 billion yuan, and AMEC’s rose 44% to 5 billion yuan. Analysts now estimate that China has achieved around 50% self-sufficiency in cleaning and photoresist-removal equipment, markets once dominated by Japanese firms.

Industry observers expect a small number of domestic giants to dominate the equipment market. “The domestic equipment market will be led by two to three major manufacturers, and Naura is definitely one of them,” one source said.

with inputs from Reuters