China has begun requiring its chipmakers to use at least 50% domestically made equipment when they add new production capacity, according to three people familiar with the matter. The move is part of Beijing’s broader effort to build a self-sufficient semiconductor supply chain and reduce its dependence on foreign technology.

The requirement has not been publicly announced or formally documented. However, the sources said that in recent months, chipmakers seeking state approval to build new factories or expand existing ones have been told by authorities that they must prove, through procurement tenders, that at least half of the equipment they plan to use is made in China.

This policy is one of the strongest steps China has taken so far to cut its reliance on foreign chipmaking tools. The push gathered momentum after the United States tightened export restrictions in 2023, blocking sales of advanced artificial intelligence chips and certain semiconductor manufacturing equipment to China.

While U.S. export curbs stopped the sale of some of the most advanced tools, the new 50% domestic rule is going further. It is encouraging Chinese manufacturers to choose local suppliers even in areas where equipment from the United States, Japan, South Korea, and Europe is still available.

According to the sources, applications that do not meet the 50% requirement are usually rejected. However, there is some flexibility. Authorities may relax the rules depending on supply constraints. The requirements are also less strict for advanced chip production lines, where domestically developed equipment is not yet fully available.

“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.”

China’s industry ministry did not respond to a request for comment. The sources declined to be identified because the policy has not been made public.

President Xi Jinping has repeatedly called for a “whole nation” effort to build a fully self-sufficient domestic semiconductor supply chain. This effort involves thousands of engineers and scientists working across companies and research centres throughout the country.

The drive toward self-reliance spans the entire semiconductor supply chain. Earlier this month, Reuters reported that Chinese scientists are working on a prototype machine capable of producing cutting-edge chips, an outcome that Washington has spent years trying to prevent.

The shift in policy has already changed how Chinese chipmakers operate. A former employee at local equipment maker Naura Technology said Chinese fabs previously preferred foreign tools.

“Before, domestic fabs like SMIC would prefer U.S. equipment and would not really give Chinese firms a chance,” the former employee said, referring to Semiconductor Manufacturing International Corporation (SMIC). “But that changed starting with the 2023 U.S export restrictions, when Chinese fabs had no choice but to work with domestic suppliers.”

State-affiliated entities placed a record 421 orders for domestic lithography machines and related parts this year, worth about 850 million yuan, based on publicly available procurement data. This highlights the growing demand for locally developed technologies.

To support the industry, Beijing has invested heavily through its main semiconductor investment vehicle, known as the “Big Fund.” A third phase of the fund was launched in 2024 with 344 billion yuan ($49 billion) in capital.

The policy is already producing results, particularly in areas such as etching, a critical step in chip manufacturing. Etching involves removing material from silicon wafers to create complex transistor patterns.

China’s largest chip equipment group, Naura, is now testing its etching tools on SMIC’s advanced 7-nanometre production line, according to two sources. This follows Naura’s recent success in deploying etching tools on 14-nanometre production lines.

“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. The source added that the rule is forcing domestic suppliers to improve rapidly.

In the past, advanced etching tools in China were mainly supplied by foreign companies such as U.S.-based Lam Research and Japan’s Tokyo Electron. These are now being partly replaced by Chinese firms like Naura and its smaller rival Advanced Micro-Fabrication Equipment (AMEC), the sources said.

Naura has also become an important partner for Chinese memory chipmakers. It supplies etching tools used to make advanced chips with more than 300 layers. The company has also developed electrostatic chucks, which hold wafers during processing. These parts are being used to replace worn components in Lam Research equipment that could no longer be serviced after the 2023 export restrictions.

Naura, AMEC, YTMC, SMIC, Lam Research, and Tokyo Electron did not respond to requests for comment. China’s progress is worrying global competitors, as foreign suppliers are increasingly pushed out of the Chinese market.

Naura filed a record 779 patents in 2025, more than double the number it filed in 2020 and 2021. AMEC filed 259 patents during the same period, according to data from Anaqua’s AcclaimIP database verified by Reuters.

This innovation push is also reflected in financial performance. Naura’s revenue for the first half of 2025 rose 30% to 16 billion yuan. AMEC reported a 44% increase in first-half revenue to 5 billion yuan. Analysts estimate that China has now achieved about 50% self-sufficiency in photoresist-removal and cleaning equipment, a segment that was once dominated by Japanese companies but is now led by domestic players. “The domestic equipment market will be dominated by two to three major manufacturers, and Naura is definitely one of them,” said a separate source.