China Mandates 50% Local Equipment for Semiconductor Production

In a decisive move to enhance its semiconductor sector, China has implemented a requirement for chip manufacturers to utilize a minimum of 50% domestically produced equipment when expanding production capabilities. This initiative is part of Beijing’s overarching strategy to diminish reliance on foreign technology and establish a completely self-reliant chip supply chain.

Sources indicate that although the rule has not been formally announced, it is being applied during the review of submissions for new or expanded chip manufacturing facilities. Companies seeking governmental approval must provide documentation demonstrating that at least half of their machinery will be sourced from Chinese vendors. Should they fail to comply with this guideline, their applications are frequently denied; however, some leniency is permitted if local alternatives are unavailable.

Historically, China has depended on chipmaking apparatus from the United States, Japan, South Korea, and Europe for years. This reliance has raised significant concerns, particularly after the U.S. imposed tighter export restrictions in 2023, barring the sale of advanced chips and critical manufacturing tools to China. Consequently, Chinese semiconductor firms have faced escalating pressure to source from local suppliers, even in cases where foreign options are still accessible.

Insiders suggest that authorities prefer the local content to exceed 50%. Ultimately, the aim is for factories to operate with nearly 100% Chinese-made equipment. Nevertheless, for advanced chip production, regulations are more flexible since some high-level domestic tools are still under development.

President Xi Jinping has repeatedly advocated for a nationwide initiative to cultivate a robust domestic semiconductor sector. This strategy mobilizes thousands of engineers, scientists, companies, and research institutions. Additionally, the government is supporting this initiative with substantial financial investment through the state-backed “Big Fund,” which is set to launch a new phase in 2024, infusing hundreds of billions of yuan into the industry.

The early impacts of this policy are becoming evident, with domestic equipment manufacturers witnessing an upswing in orders and faster technological advancements. Firms like Naura and Advanced Micro-Fabrication Equipment are now supplying critical tools for essential manufacturing processes such as etching, which shapes intricate circuits on silicon wafers. Some of these tools are being trialed on advanced production lines, illustrating how swiftly local companies are closing the gap with international leaders.

In a notable trend, state-affiliated purchasers have made a record number of orders for domestic lithography machinery and components this year, reflecting a strong appetite for localized technology. Simultaneously, Chinese companies are filing more patents and reporting robust revenue increases, underscoring the effects of government support and assured demand.

While the policy benefits Chinese suppliers, it raises concerns among foreign entities losing access to one of the globe’s largest chip markets. Analysts posit that China has already achieved approximately 50% self-sufficiency in specific equipment sectors that were once the domain of foreign firms.

All in all, this 50% local equipment mandate signifies a pivotal change in China’s semiconductor strategy. By prioritizing domestic tools in current factories, Beijing aims to cultivate the necessary skills, scale, and self-assurance for future global competition, even amidst ongoing international pressures.