Unprecedented Growth in Domestic Equipment Adoption
China’s semiconductor industry has achieved a remarkable milestone in its quest for self-reliance. By the end of 2025, the ratio of domestically developed semiconductor equipment surged to 35%, a significant increase from 25% in 2024. This figure not only surpassed Beijing’s target of 30% but also highlighted the rapid progress made in critical manufacturing processes. The adoption of local equipment has been particularly strong in etching and thin-film deposition, where usage exceeded 40%, thanks to advancements by companies like Naura Technology Group and Advanced Micro-Fabrication Equipment (AMEC).
For instance, AMEC’s 5-nanometer-grade etching machine has entered validation for Taiwan Semiconductor Manufacturing Company’s (TSMC) advanced process lines, a testament to the growing capabilities of Chinese equipment manufacturers. Meanwhile, Naura’s oxidation and diffusion furnaces now account for more than 60% of the 28nm production lines at Semiconductor Manufacturing International Corporation (SMIC), China’s top foundry. Additionally, Piotech has doubled its share of plasma-enhanced chemical vapour deposition equipment at Yangtze Memory Technology’s (YMTC) 3D NAND production lines, increasing its stake to 30% from 15%.
Policy Drivers and Strategic Investments
This surge in domestic equipment adoption is not accidental but the result of deliberate policy measures and substantial investments. The Chinese government has prioritized semiconductor self-sufficiency as a national strategic imperative, especially in response to escalating US export controls. These restrictions, which began during the Trump administration and have continued under Biden, aim to limit China’s access to advanced technologies. In retaliation, China has intensified its focus on building an independent semiconductor supply chain.
Central to this effort is the China Integrated Circuit Industry Investment Fund, commonly known as the ‘Big Fund.’ Launched in 2014, the fund has committed tens of billions of dollars across multiple phases to support domestic chip manufacturing, design, and materials. The third phase of the Big Fund alone provided 344 billion yuan ($47 billion), a sum greater than the first two rounds combined. This financial backing has enabled companies like SMIC, YMTC, and Naura to scale up their operations and invest in research and development.
Beyond financial investments, China has implemented policies like the ‘dual circulation strategy,’ which emphasizes domestic consumption and innovation while engaging selectively with global markets. The ‘whole-nation system’ further mobilizes resources across government, academia, and industry to achieve breakthroughs in critical technologies. These frameworks are part of a broader strategy to reduce reliance on foreign suppliers and ensure national security.
The 50% Rule: A New Mandate
In a significant escalation of its self-reliance drive, China has reportedly imposed a ‘50% rule’ requiring local chipmakers to use at least 50% domestically made equipment when building new fabs or expanding existing ones. According to sources familiar with the matter, this rule is strictly enforced, with applications failing to meet the threshold usually rejected. Exceptions are made only for advanced production lines where suitable domestic equipment does not yet exist.
Before, domestic fabs like SMIC would prefer US equipment and would not really give Chinese firms a chance. But that changed with the 2024 export restrictions, when Chinese fabs had no choice but to work with domestic suppliers.
This mandate underscores China’s determination to eliminate foreign dependencies in its semiconductor supply chain. The policy has already accelerated the adoption of domestic equipment, with companies like Naura seeing their etching tools being tested on SMIC’s leading-edge 7nm production lines.
Technological Advancements and Challenges
While China has made significant strides in certain areas, challenges remain in others. The country has achieved high self-sufficiency in processes like photoresist stripping, cleaning, etching, and chemical mechanical planarization (CMP). However, it still lags in critical segments such as metrology, coating/developing, lithography, and ion implantation, where foreign technology, particularly from Japan, the Netherlands, and Taiwan, is indispensable.
One of the most significant hurdles is the lack of access to advanced lithography machines. Dutch firm ASML is the sole supplier of extreme ultraviolet (EUV) lithography machines, which are essential for manufacturing the most advanced chips. Export controls have prevented ASML from selling these machines to China, forcing Chinese companies to innovate or find alternatives. Reports suggest that former employees of ASML have returned to China, aiding in reverse-engineering efforts to develop domestic EUV capabilities.
Beyond Lithography: AI and Memory
China’s self-reliance efforts are not limited to traditional semiconductor manufacturing. The country is also making strides in artificial intelligence (AI) chips and high-bandwidth memory (HBM), which are critical for next-generation computing. Companies like Huawei and Alibaba have unveiled breakthroughs in AI accelerators, with Huawei detailing a three-year roadmap for its Ascend chips and plans to open-source its CANN platform.
In the memory sector, YMTC has emerged as a leading player in NAND flash technology, while ChangXin Memory Technologies (CXMT) is making progress in DRAM. These advancements are crucial for reducing dependence on foreign memory giants like Samsung and SK Hynix. However, US export controls on advanced HBM pose a challenge, as Chinese firms currently lack the capability to produce HBM2E, which is integral to high-end AI accelerators.
Global Implications and Geopolitical Tensions
China’s push for semiconductor self-reliance has significant implications for the global tech landscape. As China reduces its reliance on foreign equipment, it could alter the dynamics of the semiconductor supply chain, potentially creating a bifurcated market. Countries like Japan, the Netherlands, and South Korea, which have traditionally supplied advanced equipment to China, may see their market share decline.
Moreover, the tech war between the US and China has intensified, with each side imposing export controls and retaliatory measures. The US has targeted China’s self-reliance nexus, particularly Huawei and SMIC, with stringent restrictions. In response, China has leveraged its control over critical minerals like gallium, germanium, and graphite to exert pressure on the US and its allies.
The US is gambling it can impair China’s ability to produce advanced node chips and buy the US and partners more time to widen their lead over China.
This escalation raises questions about the future of global cooperation in technology. While China has made progress in achieving self-sufficiency in mature nodes and certain processes, complete autonomy in cutting-edge technologies remains elusive. The interplay between national security concerns and economic interdependence will continue to shape the semiconductor industry’s trajectory.
Economic and Industrial Considerations
China’s industrial policies, particularly Made in China 2025 (MIC25), have driven substantial progress in building large industrial sectors. However, these policies have also led to unintended consequences, such as overcapacity and economic inefficiencies. Local governments have invested heavily in duplicative projects, leading to waste and fiscal strain.
Despite these challenges, China’s semiconductor industry has shown remarkable growth. In 2023, the industry generated $179.5 billion in revenue, with a compound annual growth rate of 7.31% expected from 2023 to 2027. The country now accounts for 16% of global chip production, ranking third worldwide. This growth is fueled by both state support and increasing demand from domestic industries like AI, electric vehicles, and cloud computing.
Talent and Innovation
Recognizing that technology is driven by people, China has implemented initiatives to attract and retain top-tier talent. Programs like the Thousand Talents Plan and the High-End Foreign Expert Program aim to reverse the brain drain by incentivizing overseas Chinese and international experts to return or work in China. Additionally, domestic STEM education has been prioritized to cultivate indigenous innovation capacity.
These efforts have begun to yield results. Chinese researchers have unveiled breakthroughs like QiMeng, an AI-driven chip design platform, and mass production of the world’s first non-binary AI chip. Such innovations demonstrate China’s ability to push beyond Western models and establish its own technological pathways.
The Road Ahead
Looking forward, China’s semiconductor industry is likely to evolve through a hybrid model, balancing partial self-sufficiency in mature nodes with strategic integration in global markets. While complete technological autonomy remains a long-term goal, the pace of progress suggests that China will continue to narrow the gap with global leaders in critical areas.
However, the industry faces several challenges, including talent shortages, external resistance, and the complexity of advanced technologies. The success of China’s self-reliance drive will depend on its ability to navigate these obstacles while maintaining innovation and economic viability. For the rest of the world, China’s advancements will necessitate strategic adjustments, whether through collaboration, competition, or a combination of both.
Key Points
- China’s semiconductor equipment self-sufficiency reached 35% by the end of 2025, surpassing the 30% target.
- Domestic adoption exceeded 40% in etching and thin-film deposition, led by companies like Naura and AMEC.
- The ‘Big Fund’ has invested tens of billions of dollars to support domestic semiconductor companies.
- A new ‘50% rule’ mandates local chipmakers to use at least 50% domestic equipment for new fabs.
- Challenges remain in advanced lithography, metrology, and high-bandwidth memory production.
- Geopolitical tensions with the US have accelerated China’s self-reliance efforts but also led to retaliatory measures.
- China’s semiconductor industry generated $179.5 billion in revenue in 2023, with steady growth expected.
- Talent acquisition and STEM education are key components of China’s long-term strategy.
- Breakthroughs in AI chips and memory technologies highlight China’s innovative capabilities.
- The global semiconductor landscape may bifurcate as China reduces reliance on foreign technology.
