China Mandates 50% Domestic Equipment Use for Chipmakers

Key points

China is now requiring its chipmakers to use at least 50% domestically made equipment when expanding their production capacity.
The rule is aimed at reducing the country’s dependence on foreign technology and building a self-sufficient semiconductor supply chain.
The long-term goal is to achieve 100% domestic manufacturing equipment, reducing reliance on foreign companies, including those from the US.

According to reports from Reuters, China has introduced a new rule requiring its chipmakers to use at least 50% domestically made equipment when expanding their production capacity. This move is seen as an effort to reduce the country’s dependence on foreign technology and build a self-sufficient semiconductor supply chain. The rule is not publicly documented, but chipmakers must demonstrate that at least half of their equipment is Chinese to get government approval.

The requirement may be temporarily relaxed for the most advanced manufacturing where domestic technology is not yet available. This is a significant development, as China has been facing US export restrictions since 2023, which have prevented the country from buying advanced AI chips and manufacturing machinery. These restrictions have hindered China’s ability to develop its semiconductor industry, prompting the government to take measures to reduce its reliance on foreign technology.

The use of domestically made equipment is crucial for China’s chipmakers, as it will allow them to develop their own semiconductor supply chain without relying on foreign companies. This will not only help China to reduce its dependence on foreign technology but also enable it to develop its own advanced manufacturing capabilities. The long-term goal is to have 100% domestic manufacturing equipment, which will reduce the country’s reliance on foreign companies, including those from the US.

This development is significant for companies like Microsoft, which has a significant presence in China and relies on Azure, its cloud computing platform, to provide services to customers in the region. The use of domestically made equipment in China’s semiconductor industry could potentially impact Microsoft’s operations in the country, as well as its ability to provide services to customers. As China continues to develop its semiconductor industry, it will be interesting to see how this affects the global tech industry, including companies like Microsoft and its Windows Server business. China’s efforts to build a self-sufficient semiconductor supply chain could have far-reaching implications for the global tech industry, and it will be important to monitor developments in this area closely.