China Sets 50% Domestic Equipment Norm for New Chip Production Capacity

China has begun requiring chipmakers to use at least 50% domestically made equipment when adding new manufacturing capacity, according to Reuters reports.  

The condition applies to companies seeking government approval to build new fabrication plants or expand existing ones. The rule is not publicly documented but has been communicated during recent approval discussions. 

How the Rule is Enforced 

Companies are asked to demonstrate compliance through procurement tenders submitted to authorities. These documents must show that at least half of the equipment planned for new capacity will be sourced from Chinese suppliers.  

Applications that fail to meet the threshold are typically rejected. Officials may allow limited flexibility where domestic equipment is not available. 

Link to Technology Curbs 

This follows tighter US export restrictions introduced in 2023, which limited China’s access to advanced chips and some semiconductor manufacturing tools.  

While those restrictions focused on high-end technologies, the domestic sourcing rule is affecting a range of equipment purchases. Chipmakers are increasingly selecting local suppliers even where foreign tools remain available. 

Broader Policy Backdrop 

The requirement forms part of China’s effort to reduce reliance on overseas semiconductor technology. President Xi Jinping has called for a “whole nation” approach involving companies, research institutes and state-backed funding.  

Public procurement data shows state-affiliated buyers placed 421 orders for domestic lithography machines and components this year, valued at about 850 million yuan. 

State Funding Support 

Financial backing for the sector has also expanded. Beijing continues to channel funding through the government-backed semiconductor investment vehicle known as the “Big Fund”.  

A 3rd phase was launched in 2024 with capital of 344 billion yuan, or about $49 billion, aimed at supporting equipment makers, chip manufacturers and related research. 

Shifts Among Equipment Suppliers 

Domestic equipment makers are beginning to see higher demand as a result of the policy. Naura Technology is testing its etching tools on Semiconductor Manufacturing International Corp’s 7-nanometre production line, after earlier use on 14nm lines.  

Chinese suppliers are also replacing some foreign equipment in areas such as etching and wafer processing. 

Signs of Rising Activity 

Patent filings and revenues at local equipment firms have increased alongside higher adoption. Naura filed 779 patents in 2025, while rival AMEC filed 259.  

In the 1st half of 2025, Naura’s revenue rose 30% to 16 billion yuan, while AMEC reported a 44% increase to 5 billion yuan. 

Read More: China to Cut Import Tariffs on Select Commodities and Medical Products from 2026! 

Conclusion 

China’s 50% domestic equipment requirement has become a major part of the approval process for new chipmaking capacity, shaping procurement decisions and increasing the use of locally made semiconductor tools. 

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