As Beijing works to create a self-sufficient semiconductor supply chain, three persons familiar with the situation stated that China is mandating chipmakers to employ at least 50% locally built equipment when adding new capacity.
Chipmakers seeking official license to develop or expand their operations have been informed by authorities in recent months that they must demonstrate through procurement tenders that at least half of their equipment would be built in China, according to persons who spoke with Reuters. The requirement is not publicly documented.
The order is one of the most important steps Beijing has taken to reduce its reliance on foreign technology. This effort gained momentum after the United States tightened export regulations in 2023, prohibiting the sale of sophisticated AI chips and semiconductor equipment to China.
Even in regions where foreign equipment from the United States, Japan, South Korea, and Europe is still available, Chinese manufacturers are choosing domestic providers due to the 50% rule, even if same U.S. export limitations prevented the sale of some of the most sophisticated instruments.
According to the people, applications that don't meet the threshold are usually turned down, though authorities may make an exception based on supply limitations.
For advanced chip production lines, when domestically made equipment is not yet fully accessible, the criteria are loosened. According to one insider, "Authorities prefer if it is much higher than 50%," Reuters reported. "Eventually they are aiming for the plants to use 100% domestic equipment."
A request for comment was not answered by China's ministry of industry. Since the measure is not public, the sources did not want to be identified.
President Xi Jinping of China has been advocating for a "whole nation" initiative that engages thousands of engineers and scientists from businesses and research facilities around the country in order to create a fully self-sufficient domestic semiconductor supply chain.
The broad supply-chain spectrum is the focus of the endeavor. Earlier this month, Reuters revealed that Chinese researchers are developing a prototype of a device that might produce state-of-the-art semiconductors, something Washington has been attempting to stop for years.
A former employee of the local equipment manufacturer Naura Technology stated, "Previously, domestic fabs like SMIC would prefer U.S. equipment and would not really give Chinese firms a chance," referring to the Semiconductor Manufacturing International Corporation.
"But that changed starting with the 2023 U.S export restrictions, when Chinese fabs had no choice but to work with domestic suppliers."
According to publicly accessible procurement statistics, state-affiliated companies placed a record 421 orders this year for domestic lithography machines and parts worth about 850 million yuan, indicating a spike in demand for locally developed technologies.
Beijing has also invested hundreds of billions of yuan in its semiconductor industry through the "Big Fund," which created a third phase in 2024 with 344 billion yuan ($49 billion) in funds to boost the local chip supply chain.
According to reports, the strategy is already having an impact in sectors like etching, a crucial stage in the production of chips that entails removing materials from silicon wafers in order to carve out complex transistor designs.
According to two sources, Naura, the biggest chip equipment company in China, is testing its etching tools on a state-of-the-art 7nm (nanometer) SMIC production line.
The early-stage milestone shows how rapidly domestic vendors are progressing and follows Naura's recent successful deployment of etching equipment on 14nm.
One of the persons told Reuters, "Naura's etching results have been accelerated by the government requiring fabs to use at least 50% domestic equipment," adding that the company was being forced to make quick improvements.
According to sources, Naura and smaller rival Advanced Micro-Fabrication Equipment (AMEC) are now partially replacing the advanced etching equipment that were formerly supplied in China by international companies like Lam Research and Tokyo Electron.
By providing etching tools for sophisticated chips with more than 300 layers, Naura has also proven to be a crucial partner for Chinese memory chipmakers.
According to reports, it created electrostatic chucks devices that hold wafers during processing to replace damaged components in Lam Research equipment that the business was unable to maintain following the 2023 limits.
Requests for comment were not answered by Naura, AMEC, YTMC, SMIC, Lam Research, or Tokyo Electron. Global rivals are concerned about China's success because international providers are being forced out of the Chinese market.
According to Anaqua's AcclaimIP database, which Reuters confirmed, Naura submitted a record 779 patents in 2025 more than twice as many as it filed in 2020 and 2021 while AMEC filed 259.
Strong financial outcomes are also a byproduct of that. In the first half of 2025, Naura's revenue increased by 30% to 16 billion yuan. AMEC's first-half revenue increased by 44% to 5 billion yuan.
According to analysts, China is now about 50% self-sufficient in photoresist-removal and cleaning equipment, a field that was previously dominated by Japanese companies but is currently led domestically by Naura.
"The domestic equipment market will be dominated by two to three major manufacturers, and Naura is definitely one of them," according to another insider.
