China is pushing chipmakers to ensure at least half of their equipment for adding new capacity is made domestically, sources have told Reuters, making the mandate one of Beijing’s most significant moves so far to cut purchases of foreign technology and build a self-sufficient semiconductor supply chain.
The rule is not publicly documented, but chipmakers seeking state approval to build or expand their plants have been told by authorities in recent months that they must prove through procurement tenders that at least 50% of their equipment will be Chinese-made, the people told Reuters.
Applications failing the threshold are typically rejected, though authorities grant flexibility depending on supply constraints, the people said. The requirements are relaxed for advanced chip production lines, where domestically developed equipment is not yet fully available, sources said.
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“Authorities prefer if it is much higher than 50%,” one source told Reuters. “Eventually they are aiming for the plants to use 100% domestic equipment.”
That shift gathered pace after the US tightened technology export restrictions in 2023, banning sales of advanced AI chips and semiconductor equipment to China.
While those US export restrictions blocked the sale of some of the most advanced tools, the 50% rule is leading Chinese manufacturers to choose domestic suppliers even in areas where foreign equipment from the US, Japan, South Korea and Europe remain available.
And the policy is already yielding results for Beijing — leading to breakthroughs and higher revenues for chip equipment suppliers.
One such supplier — Naura Technologies — has particularly benefitted from China’s rules.
Naura has stepped up domestic alternatives in areas such as etching, a critical chip manufacturing step that involves removing materials from silicon wafers to carve out intricate transistor patterns, sources said.
The firm — China’s largest chip equipment group — is testing its etching tools on a cutting-edge 7nm (nanometre) production line of SMIC, two sources said. The early-stage milestone, which comes after Naura recently deployed etching tools on 14nm successfully, demonstrates 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 people told Reuters, adding that it was forcing the company to rapidly improve.
Big revenue gains
Advanced etching tools had been predominantly supplied in China by foreign firms such as Lam Research and Tokyo Electron, but are now being partially replaced by Naura and smaller rival Advanced Micro-Fabrication Equipment, sources say.
Naura has also proven a key partner for Chinese memory chipmakers, supplying etching tools for advanced chips with more than 300 layers. It developed electrostatic chucks — devices that hold wafers during processing — to replace worn parts in Lam Research equipment that the company could no longer service after the 2023 restrictions, sources said.
The company has filed a record 779 patents in 2025, more than double what it filed in 2020 and 2021, while AMEC filed 259, according to Anaqua’s AcclaimIP database, and verified by Reuters.
That’s also translating into strong financial results. Naura’s revenue for the first half of 2025 jumped 30% to 16 billion yuan. AMEC reported a 44% jump in first-half revenue to 5 billion yuan.
Analysts estimate that China has now reached roughly 50% self-sufficiency in photoresist-removal and cleaning equipment, a market previously dominated by Japanese firms, but now locally led by Naura.
“The domestic equipment market will be dominated by two to three major manufacturers, and Naura is definitely one of them,” said a separate source.
A ‘whole nation’ approach
China’s progress, and progress from companies like Naura, is being viewed with concern by global competitors as foreign suppliers are squeezed out of the China market.
Beijing has poured hundreds of billions of yuan to support the local chip supply chain through the “Big Fund”, which established a third phase in 2024 with 344 billion yuan ($49 billion) in capital.
Meanwhile, Chinese President Xi Jinping has been calling for a “whole nation” effort to build a fully self-sufficient domestic semiconductor supply chain that involves thousands of engineers and scientists at companies and research centers nationwide.
The effort is being made across the wide supply-chain spectrum. Chinese scientists are reportedly also working on a prototype of a machine capable of producing cutting-edge chips, an outcome that Washington has spent years trying to prevent.
State-affiliated entities also placed a record 421 orders for domestic lithography machines and parts this year worth around 850 million yuan, according to publicly available procurement data.
“Before, domestic fabs like SMIC would prefer US 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 Corporation.
“But that changed starting with the 2023 US export restrictions, when Chinese fabs had no choice but to work with domestic suppliers.”
- Reuters, with additional editing by Vishakha Saxena
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