China has quietly introduced a requirement that semiconductor manufacturers use domestically produced equipment for at least 50% of their tool purchases when adding new manufacturing capacity, according to people familiar with the matter.

The policy, which has not been published as a formal regulation, has been conveyed to companies seeking government approval to build or expand chip fabrication plants, the sources said. Applicants are required to demonstrate that at least half of their planned equipment spending will go to Chinese suppliers, or risk having their projects rejected.

Officials have told companies that the 50% threshold should be viewed as a baseline rather than a ceiling, with the long-term objective of shifting entirely to domestically sourced semiconductor manufacturing tools.

The requirement could significantly alter procurement strategies, speed up the adoption of local equipment, and reduce market access for foreign suppliers in China’s semiconductor sector.

However, the policy is applied flexibly. Waivers are reportedly available for advanced fabrication plants, where domestic alternatives remain limited. In particular, China’s equipment makers are not yet able to supply enough advanced lithography systems to meet the needs of cutting-edge fabs.

As a result, while the rule signals Beijing’s intent to strengthen self-reliance in semiconductor manufacturing, its immediate impact is likely to vary by technology node, supplier availability, and the strategic importance of individual projects, the sources said.