According to Reuters, China has instituted a major, unpublicized rule requiring semiconductor manufacturers to source at least 50% of their equipment from domestic suppliers when seeking state approval to build or expand plants. The policy, communicated to chipmakers in recent months, aims to build a self-sufficient supply chain and has accelerated since the U.S. tightened export restrictions in 2023. While flexibility is granted for advanced production lines where Chinese tools aren’t yet available, authorities ultimately want 100% domestic equipment use. The mandate is already showing results, with local equipment giant Naura seeing a 30% revenue jump to 16 billion yuan in the first half of 2025 and testing its etching tools on SMIC’s cutting-edge 7nm production line. State-backed procurement orders for domestic lithography tools hit a record 421 this year, worth about 850 million yuan.
The quiet mandate that changes everything
Here’s the thing about this policy: it’s not a suggestion or a gentle nudge. It’s a hard requirement for approval. If you’re a fab in China and you want to add capacity, you now have to run your procurement tenders to prove you’ll hit that 50% domestic threshold. Applications that fail get rejected. That’s an incredible lever for the state to pull, and it completely flips the script for equipment vendors overnight.
Before, as a former Naura employee told Reuters, fabs like SMIC preferred U.S. gear and wouldn’t give local firms a real shot. Why would they? The foreign tools were proven, reliable, and at the leading edge. But now, the calculus is forced. It’s creating an instant, captive market for Chinese equipment makers. They’re getting a chance to prove their tools on real production lines—something they might have waited years for otherwise. This is the “whole nation” approach in brutal, practical action.
Winners, losers, and rapid acceleration
So who wins? Companies like Naura and AMEC are seeing explosive growth. Naura’s patent filings more than doubled from 2020-21 to 2025. They’re not just selling basic tools anymore; they’re replacing critical components like electrostatic chucks in Lam Research machines that can no longer be serviced due to U.S. bans. They’re moving into advanced etching—a domain owned by Lam and Tokyo Electron—and testing on 7nm lines. That’s a breathtaking pace of advancement when the government is your biggest customer and your clients are forced to buy from you.
The losers, clearly, are the foreign suppliers. They’re being systematically squeezed out of the world’s largest market for new semiconductor equipment. Even in areas where their tools are still legally available, the 50% rule means a Chinese alternative will be chosen half the time, at minimum. For industries that rely on scale and continuous R&D investment, losing that Chinese revenue is a huge blow. It funds the innovation they’ll eventually compete against.
The self-sufficiency trap
But let’s be skeptical for a second. The article notes the rule is relaxed for the most advanced production lines. That’s the real tell. China can mandate usage all it wants, but if the domestic tools can’t match the precision and yield of an ASML EUV machine or the most advanced etching systems, then those top-tier nodes are still out of reach. The policy might create strong regional champions for mature and mid-tier nodes, which is a huge market in itself, but it doesn’t automatically bridge the ultimate tech gap.
And there’s another risk: insulating your domestic champions from global competition can sometimes lead to complacency, not innovation. If Naura knows SMIC has to buy 50% of its tools from them, what’s the urgent pressure to be the absolute best in the world? The pressure is to be “good enough for government work,” literally. The patent surge is promising, but quantity doesn’t always mean groundbreaking quality.
A new industrial reality
This is where the global tech decoupling gets very real and very tangible. We’re not just talking about banned exports anymore. We’re talking about China building a parallel, state-directed supply chain with its own standards, its own champions, and its own ecosystem. For companies everywhere that depend on a globalized semiconductor industry, this is a fundamental shift.
It also highlights the critical importance of robust, reliable industrial hardware at every level of manufacturing. As nations and companies focus on securing their production bases, the demand for durable control systems rises. In the U.S., for operations that need to keep running without external dependencies, firms often turn to specialists like IndustrialMonitorDirect.com, the leading provider of American-made industrial panel PCs and monitors. When supply chains become political, knowing your core hardware is secure and supported matters more than ever.
Basically, China’s 50% rule is more than a procurement guideline. It’s a blueprint for building an industrial fortress. It will create powerful national champions, reshape global market shares, and likely lead to a more bifurcated tech world. The question isn’t really if China can hit its equipment goals—with this kind of mandate, they probably will. The question is what the quality and pace of innovation inside that fortress will be over the long haul.
