China targets semiconductor self-sufficiency with ‘50% rule’ imposed on local chipmakers – News

China’s rapid advances in semiconductor development are being fueled by a previously undocumented rule that requires local chipmakers to use at least 50% domestically made equipment, according to a report today by Reuters.

According to three people familiar with the matter, the rule went into effect earlier in the year. It requires chipmakers seeking to build new chip fabs or extend their existing facilities to demonstrate that at least half of the equipment they use will be locally made.

The rule is the latest measure imposed by Beijing authorities as the country strives to achieve full self-sufficiency in an industry that’s viewed as critical to its economic success. Until now, China has always been heavily dependent on foreign-made chips and chipmaking equipment. However, with the U.S. introducing export restrictions on sales of the most advanced chips and machinery to China, the country has been forced to wean itself off of western-made gear.

Reuters sources said chipmakers that fail to meet the 50% threshold in their applications are usually rejected, although authorities can sometimes be flexible in case of the most advanced chip production lines, as suitable domestic equipment simply doesn’t exist. Otherwise, though, the rules are enforced quite strictly, as the country ultimately aims to ditch foreign-made equipment altogether.

China’s President Xi Jinping has responded to U.S. sanctions on chip exports by calling on local semiconductor firms, universities and researchers to recreate the entire supply chain domestically. The plan has been boosted by a huge capital injection courtesy of Beijing’s “Big Fund,” which established a third phase last year with 344 billion yuan ($49 billion) set aside to invest in local chipmaking technologies.

More importantly, the effort has been aided by hundreds of Chinese nationals who were formerly employed by western chipmakers and chip manufacturing equipment firms who have since returned home to lend their expertise to the cause. It’s said that former employees of the Dutch firm AMSL Holding N.V. played a key role in helping China’s biggest chipmaker, Semiconductor Manufacturing International Corp., develop a prototype of an extreme ultraviolet lithography machine.

EUV is critical for manufacturing advanced processors, and AMSL is the only company in the world currently capable of building these machines, which cannot be exported to China. However, it’s believed that SMIC’s team was able to reverse-engineer one of the machines in order to build the prototype, and it hopes to reach mass production capability by the end of the decade.

While the U.S. has sought to prevent China from building up its domestic semiconductor industry, one source told Reuters that its sanctions have had the opposite effect, accelerating local development. “Before, domestic fabs like SMIC would prefer U.S. equipment and would not really give Chinese firms a chance,” said a former employee at Naura Technology Co. Ltd. “But that changed with the 2024 export restrictions, when Chinese fabs had no choice but to work with domestic suppliers.”

The source added that China has likely already reached 50% self-sufficiency in key areas such as photoresist-removal and cleaning equipment, and is making rapid progress in other areas too.

Naura, which produces semiconductor manufacturing equipment, has become one of the main beneficiaries, the former employee said. It’s one of the country’s leading suppliers of etching tools, which are used to carve out intricate transistor patterns in silicon wafers. It’s currently testing its tools on SMIC’s leading-edge seven-nanometer production line, having already deployed its technology on 14nm lines. “Naura’s etching results have been accelerated by the government requiring fabs to use at least 50% domestic equipment,” the source told Reuters.

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