China Tightens Grip on Chipmakers with Domestic Sourcing Mandate

Chinese regulators are enforcing an unspoken rule requiring semiconductor firms to source at least 50% of equipment domestically for new production approvals. Three sources familiar with the process confirm authorities are delivering this mandate directly to companies during procurement reviews. While not codified in public policy, the threshold acts as a gatekeeper for plant construction and expansion permits.

Applications must disclose equipment origins in tender documents. Submissions falling short of the 50% benchmark face automatic rejection, though limited exceptions exist for advanced production lines where local alternatives remain under development. "Authorities prefer ratios far exceeding 50%," one insider noted, adding the long-term target is 100% domestic tooling.

The policy accelerated after 2023 U.S. export controls restricted China's access to advanced AI chips and semiconductor manufacturing technology. Though some foreign equipment from American, European, Japanese and South Korean suppliers remains available, manufacturers now prioritize local vendors regardless of alternatives—shifting focus from supply chain resilience to regulatory compliance.