China now demands chipmakers prove 50% of their tools are domestically made to get state approval for new capacity

Chipmakers now face a hard requirement before adding new factory capacity, as they must show that at least 50% of their equipment is domestically made to secure state approval, according to a report from Reuters.

Three people familiar with the process said authorities have allegedly delivered this message directly to companies seeking clearance. The rule is not written into public policy, but it is being enforced through procurement reviews tied to plant construction and expansion. China is using this gatekeeping method to force local sourcing at scale.

Companies are required to submit tenders that clearly list equipment origins. If the domestic share falls below the threshold, approvals usually stop there. Officials may allow limited flexibility when supply gaps exist, especially for advanced production lines where local tools are still incomplete. One person said regulators actually want the ratio higher.

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

Chinese authorities tighten chipmaker approvals in efforts to change supply chains inward

The requirement gained speed after the United States tightened export rules in 2023. Those measures blocked sales of advanced AI chips and key semiconductor tools to China. While some foreign equipment from the U.S., Japan, South Korea, and Europe remains available, manufacturers are now choosing local suppliers even when alternatives exist. This is no longer about access. It is about compliance.

Applications that fail the sourcing test are often rejected. For advanced lines, the rules ease slightly because domestic gear does not fully cover every step. Even then, firms must show clear intent to localize over time. The policy stands as one of the strongest moves yet to cut reliance on foreign technology. It also reshapes purchasing decisions across the entire chip sector.

State-linked buyers are already responding. Public procurement data shows 421 orders for domestic lithography tools and components this year, valued at about 850 million yuan. That marks a sharp rise in demand for locally developed machines. To support this shift, Beijing continues to fund the sector through the Big Fund, which launched a third phase in 2024 with 344 billion yuan, equal to about $49 billion.

Domestic equipment makers gain ground under pressure

President Xi Jinping has framed chip independence as a “whole nation” effort. Thousands of engineers and researchers across companies and labs are involved.

Earlier this month, scientists reported work on a prototype machine capable of producing cutting-edge chips, an outcome Washington has tried to block for years.

A former employee at Naura Technology allegedly said that fabs once favored U.S. tools. “Before, domestic fabs like SMIC would prefer U.S. equipment and would not really give Chinese firms a chance,” the person said. “But that changed starting with the 2023 U.S export restrictions, when Chinese fabs had no choice but to work with domestic suppliers.”

The policy is already reshaping results. In etching, a key step that removes material from silicon wafers, Naura is testing tools on a 7nm production line at SMIC, after earlier success at 14nm. One source said the mandate sped up progress.

“Naura’s etching results have been accelerated by the government requiring fabs to use at least 50% domestic equipment,” the person allegedly said.

Foreign suppliers like Lam Research and Tokyo Electron once dominated this segment. Now they are being partially replaced by Naura and Advanced Micro-Fabrication Equipment. Naura also supplies memory chipmakers with etching tools for chips exceeding 300 layers and developed electrostatic chucks to replace parts that Lam could no longer service after 2023.

Naura filed 779 patents in 2025, more than double its filings in 2020 and 2021, while AMEC filed 259. And Naura’s first-half 2025 sales rose 30% to 16 billion yuan, while AMEC reported a 44% jump to 5 billion yuan, according to Reuters.

Analysts now estimate China has reached 50% self-sufficiency in photoresist removal and cleaning equipment.

Get $50 free to trade crypto when you sign up to Bybit now