China is requiring chipmakers to use at least 50% locally manufactured equipment for adding new capacity, Reuters reported, citing three people with knowledge of the matter, as the country pushes to build a self-sufficient semiconductor supply chain.
The rule is not publicly documented, however, in recent months, chipmakers looking for state approval to set up or expand their plants have been told by authorities that they must prove through procurement tenders that at least half their equipment will be China-made, the report added.
It is one of the most significant measures China has unveiled to reduce reliance on foreign technology. The efforts saw renewed pace after the U.S. tightened technology export restrictions in 2023, curbing the sale of advanced AI chips and semiconductor equipment to China.
The U.S. export curbs blocked the sale of some of the most advanced tools, but the 50% rule is leading Chinese manufacturers to choose local suppliers even in areas where foreign equipment from the U.S., Japan, South Korea and Europe remains available.
Applications failing the threshold are usually rejected, but authorities grant flexibility depending on supply constraints, the report noted. The requirements are relaxed for advanced chip production lines, where locally developed equipment is not yet fully available, according to the report.
“Authorities prefer if it is much higher than 50%,” one source told the news agency. “Eventually they are 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 local semiconductor supply chain.
Earlier this month, Reuters reported that Chinese scientists are working on a prototype of a machine capable of making cutting-edge chips, an outcome the U.S. has been trying to prevent.
“Before, domestic fabs like SMIC would prefer U.S. equipment and would not really give Chinese firms a chance,” a former employee at local equipment maker Naura Technology said, referring to the Semiconductor Manufacturing International (SIUIF). “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 the report.
State-affiliated entities placed a record 421 orders for local lithography machines and parts this year, worth about 850M yuan. To support the local chip supply chain, China has also spent hundreds of billions of yuan into its semiconductor sector through the “Big Fund”, which set up a third phase in 2024 with 344B yuan ($49B) in capital, the report added.
The policy is already yielding results, including in areas like etching, a vital chipmaking step that involves removing materials from silicon wafers to carve out intricate transistor patterns, the report noted.
China’s largest chip equipment group, Naura, is testing its etching tools on a cutting-edge 7-nanometer, or nm, production line of Semiconductor Manufacturing International, the report added. The early-stage milestone, which comes after Naura recently deployed etching tools on 14-nm successfully, shows how quickly domestic suppliers are advancing.
“Naura’s etching results have been accelerated by the government requiring fabs to use at least 50% domestic equipment,” one of the sources told Reuters, adding that it was forcing the company to rapidly improve.
Advanced etching tools had been predominantly supplied in China by foreign companies such as Lam Research (LRCX) and Tokyo Electron but are now being partially replaced by Naura and smaller rival Advanced Micro-Fabrication Equipment, the report added.
Naura has also proven a key partner for Chinese memory chipmakers, supplying etching tools for advanced chips with over 300 layers. The company developed electrostatic chucks — devices that hold wafers during processing — to replace worn parts in Lam Research equipment that the company could not service after the 2023 restrictions, the report noted.
Lam Research did not immediately respond to a request for comment from Seeking Alpha.
Analysts estimate that China has now reached about 50% self-sufficiency in photoresist-removal and cleaning equipment, a market previously dominated by Japanese companies, but now locally led by Naura, the report added.