Introduction
China has quietly introduced one of the most consequential semiconductor policies of the decade. Chipmakers in China are now required to use at least 50% Domestic Equipment Rule when building or expanding fabrication plants.
The rule is not publicly documented, but industry sources confirm it has become a de facto requirement for government approvals.
This move signals a deeper shift. China is no longer reacting to U.S. export controls. It is re-engineering the global semiconductor supply chain in its favor.
5 Key Facts You Must Know
- Chinese fabs must prove 50% domestic equipment usage to get approval for new capacity
- The rule accelerates China’s push for semiconductor self-sufficiency
- Local equipment makers like Naura and AMEC are gaining fast
- Foreign suppliers face structural exclusion, not temporary setbacks
- Beijing’s long-term goal is 100% domestic chipmaking equipment
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What Exactly Is the 50% Domestic Equipment Rule?
Chinese authorities now require chipmakers to demonstrate—through procurement tenders—that half of the equipment used in new or expanded fabs comes from domestic suppliers.
The policy applies most strictly to:
- Mature node fabs
- Specialty and memory production
- Capacity expansion projects
For advanced nodes, regulators allow flexibility due to limited local alternatives. Even then, officials prefer higher domestic content wherever possible.
Applications that fail to meet the threshold are often rejected. In effect, policy now dictates procurement decisions.
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Why China Introduced This Rule Now
For decades, China relied heavily on foreign semiconductor equipment from:
- The United States
- Japan
- South Korea
- Europe
That dependency became a strategic liability after the U.S. tightened export controls in 2023, blocking access to advanced AI chips and manufacturing tools.
Beijing’s response has been methodical:
- Reduce reliance on foreign technology
- Create guaranteed demand for domestic suppliers
- Force rapid learning and iteration
The 50% rule turns this strategy into enforcement, not guidance.
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The “Whole Nation” Semiconductor Strategy
President Xi Jinping has repeatedly called for a “whole nation” approach to semiconductor development.
This strategy mobilizes:
- State funding
- Research institutions
- Universities
- Equipment makers
- Chip fabs
China’s semiconductor push is not market-led. It is state orchestrated at scale.
The third phase of China’s semiconductor “Big Fund,” launched in 2024 with 344 billion yuan ($49 billion), ensures domestic firms can survive early failures and scale quickly.
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How U.S. Export Controls Changed Chinese Fabs’ Behavior
Before 2023, Chinese fabs preferred foreign equipment. Domestic tools were often treated as backups.
That changed after export restrictions cut off:
- Equipment servicing
- Spare parts
- Tool upgrades
Chinese fabs had no choice but to work with local suppliers.
The 50% mandate ensures that this shift becomes permanent, not reactive.
Winners: China’s Domestic Equipment Champions
Naura Technology’s Rapid Rise
Naura has emerged as China’s most important semiconductor equipment supplier.
Recent milestones include:
- Etching tools deployed successfully at 14nm production
- Testing underway on SMIC’s 7nm manufacturing line
- Tools supporting advanced memory chips with 300+ layers
- Replacement components for equipment previously serviced by U.S. firms
Naura filed 779 patents in 2025, more than double its filings in 2020–2021. Its revenue jumped 30% in the first half of 2025, reaching 16 billion yuan.
Policy-driven demand is accelerating real technological progress.
AMEC and the Rise of a Domestic Duopoly
Advanced Micro-Fabrication Equipment (AMEC) is also gaining ground.
Key indicators:
- First-half 2025 revenue up 44% to 5 billion yuan
- 259 patent filings in 2025
- Growing presence in etching and deposition tools
Analysts now estimate China has achieved around 50% self-sufficiency in photoresist-removal and cleaning equipment—once dominated by Japanese suppliers.
Losers: Foreign Equipment Makers Lose Structural Access
The policy is squeezing global equipment suppliers out of China’s market.
Companies such as:
are losing market share not because of performance, but because of policy.
Even where foreign tools remain available, Chinese fabs increasingly choose domestic options to meet approval thresholds.
This represents a structural loss, not a cyclical downturn.
Can China Reach 100% Domestic Equipment?
Not immediately—but the direction is clear.
China still lags in:
- Advanced lithography
- High-end metrology
- EUV systems
However, success in etching, cleaning, deposition, and components shows that forced adoption accelerates innovation when combined with funding and scale.
The 50% rule is a transitional mechanism, designed to create demand, accelerate learning curves, and reduce dependence step by step.
Our Take: This Is a Supply Chain Reset, Not Just a Policy
This policy reshapes more than China’s chip industry.
It alters:
- Global equipment market dynamics
- Investment flows
- Technology diffusion paths
China is building a system where market access depends on domestic alignment.
For global semiconductor firms, this marks a move toward long-term decoupling, not temporary friction.
Conclusion: A Divided Semiconductor Future
China’s 50% domestic equipment rule may be unofficial, but its impact is already visible.
Domestic suppliers are scaling faster. Foreign firms are losing ground. And Beijing is steadily turning dependency into autonomy.
The global semiconductor industry is entering a new phase—one shaped as much by policy as by technology.
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