China Mandates Local Equipment Use to Speed Chip Self-Sufficiency
China is tightening its drive toward semiconductor self-sufficiency by requiring chipmakers to source at least half of their manufacturing equipment from domestic suppliers when building new plants or expanding capacity. The policy, communicated directly to companies seeking regulatory approval, is already reshaping procurement strategies across the country’s fast growing semiconductor sector. Firms that fail to meet the 50 percent threshold risk having their expansion plans rejected, according to people familiar with the process. While not formally published, the rule is being enforced through state approval channels, signalling a more assertive phase in Beijing’s effort to reduce reliance on foreign chipmaking technology.
The requirement allows for limited flexibility depending on the availability of domestic tools, particularly at more advanced process nodes, but officials are pushing companies to exceed the minimum wherever possible. The long term objective, industry sources say, is for fabs to operate entirely on Chinese made equipment. The policy builds on momentum generated after tighter U.S. export controls in 2023 restricted China’s access to advanced lithography and AI related tools. Instead of focusing only on blocked technologies, Beijing is now steering capital spending toward domestic suppliers even in areas where foreign equipment remains commercially available.
The mandate is accelerating a shift that was already underway inside China’s semiconductor industry. Domestic fabs that once prioritised tools from U.S., Japanese, and European vendors are being pressed to qualify local alternatives at scale. That process is shortening development cycles for Chinese equipment makers, though it also introduces operational risk as newer tools are tested in high volume production. State backed procurement data indicates that demand for domestic equipment surged last year, with hundreds of orders placed for locally produced lithography systems and components as government linked entities aligned spending with policy priorities.
Local suppliers are emerging as clear beneficiaries of the new rules. Naura Technology, China’s largest chip equipment producer, is expanding the deployment of its etching tools at leading domestic fabs. Its systems are now being tested on advanced production lines at SMIC, building on earlier use at more mature nodes. Industry sources say mandatory domestic sourcing has accelerated technical improvement by forcing fabs and suppliers to work closely together under real production conditions, rather than limiting trials to pilot environments.
The push is being reinforced by continued state funding. China’s national semiconductor investment fund launched a new phase in 2024 with hundreds of billions of yuan in backing, ensuring that capital remains available as fabs retool supply chains around domestic equipment. Analysts note that China has already reached around 50 percent self-sufficiency in certain equipment categories such as cleaning and photoresist removal, areas once dominated by overseas suppliers. Similar progress is now being targeted across deposition, etching, and wafer handling tools.
For foreign equipment makers, the policy further constrains access to one of the world’s largest semiconductor markets, compounding pressure from export controls and geopolitical uncertainty. For China, the mandate reflects a deliberate trade off, prioritising long term strategic autonomy over short term efficiency. As new fabs come online under the local sourcing rule, China’s semiconductor ecosystem is increasingly developing in parallel to global supply chains, reinforcing a more fragmented and regionally anchored industry structure.
