China's 50% Domestic Equipment Mandate: A Catalyst for Semiconductor Self-Sufficiency and Local Winners

China's push for semiconductor self-sufficiency has entered a critical phase with the implementation of a 50% domestic equipment mandate for chipmakers seeking to expand capacity. This policy, enforced through procurement tenders and state-backed incentives, is reshaping the global semiconductor supply chain and creating opportunities for domestic equipment firms. As Beijing accelerates its "Made in China 2025" strategy, investors are increasingly turning their attention to the local players poised to benefit from this structural shift.

The Policy Framework and Its Implications

The 50% domestic equipment mandate, introduced in response to U.S. export curbs on advanced chips and tools in 2023, requires chipmakers to source at least half of their equipment from domestic suppliers for new or expanded production facilities according to White Case. This rule is enforced through state approval processes, where non-compliance risks project delays or funding cuts. The policy is part of a broader effort to reduce reliance on foreign technology, particularly in light of U.S. restrictions on extreme ultraviolet (EUV) lithography and advanced design tools.

Government support is evident in the "Big Fund," which allocated 344 billion yuan ($49 billion) in 2024 to bolster domestic equipment and materials development according to White Case. While China has not yet achieved self-sufficiency in advanced processes (e.g., below 7nm), the mandate has already driven a shift toward domestic suppliers for less complex manufacturing steps, such as etching and wafer processing. This has created a "domestic-first" procurement environment, squeezing foreign competitors like Korean firms Zeus and GST, whose revenues have declined due to reduced Chinese orders.

Key Domestic Winners: Financials and Strategic Momentum

Several Chinese equipment manufacturers have emerged as central beneficiaries of the mandate, supported by robust R&D investments and government contracts.

1. Naura Technology
   A leader in etching tools, Naura has made significant strides in 7nm production lines, achieving a 30% revenue increase in the first half of 2025. The company's success is tied to its ability to meet the demand for mid-node processes, which remain critical for automotive and industrial applications. With 3.285 billion yuan in R&D spending in Q1-Q3 2025, Naura is also advancing its capabilities in deposition and cleaning tools, positioning itself for long-term growth.

2. ACM Research
   Specializing in wafer processing solutions, ACM Research reported Q3 2025 revenue of $269.2 million, a 32% year-over-year increase. The firm's 42% gross margin and a $623 million private offering in September 2025 underscore its financial strength. These funds will accelerate the development of next-generation tools, including advanced chemical mechanical planarization (CMP) systems, which are essential for high-volume manufacturing.

3. Advanced Micro-Fabrication Equipment (AMEC)
   AMEC, a key supplier of ion implanters and thin-film deposition tools, spent 1.794 billion yuan on R&D in Q1-Q3 2025. Its focus on mature-node technologies aligns with the mandate's emphasis on self-sufficiency in non-advanced processes. AMEC's partnerships with state-backed foundries like Semiconductor Manufacturing International Corporation (SMIC) further solidify its market position.

4. Hygon
   While primarily known for its x86 chip designs, Hygon has also invested 2.586 billion yuan in R&D in 2025, reflecting its broader strategy to integrate equipment and design capabilities. This vertical integration model could enhance its resilience against U.S. export controls and position it as a one-stop solution provider for domestic clients.

Investment Potential and Risks

The Chinese semiconductor equipment sector is projected to grow at a 12.4% CAGR, reaching $27 billion by 2030. This growth is driven by government incentives, surging demand for mature-node chips in automotive and IoT sectors, and the localization of silicon-carbide and gallium nitride (GaN) power devices. However, challenges persist. U.S. export restrictions on EUV lithography and advanced EDA tools remain a bottleneck for cutting-edge production, while global competition from South Korea and Taiwan continues to pressure margins.

For investors, the key is to focus on firms with strong R&D pipelines and strategic partnerships. Naura and ACM Research, for instance, have demonstrated both financial resilience and technological adaptability. AMEC's deep ties to SMIC and its focus on mid-node tools also make it a compelling candidate. Conversely, companies reliant on niche markets or lacking government backing may struggle to scale.

Conclusion

China's 50% domestic equipment mandate is more than a policy-it is a strategic lever to transform the semiconductor industry. While full self-sufficiency in advanced processes remains distant, the mandate has already catalyzed a shift in procurement behavior and accelerated the rise of domestic champions. For investors, the path forward lies in identifying firms that align with the government's long-term vision, possess robust R&D capabilities, and can navigate the evolving geopolitical landscape.