China Sets 70 Percent Chip Equipment Target for 2027 as Sanctions Drive the Largest Forced Localization in Semiconductor History
Beijing is mandating domestic sourcing for new fabs and racing to build an independent semiconductor equipment supply chain, with three Chinese firms now in the global top 20 and a prototype EUV machine reportedly under assembly.
Overview
Beijing has set a target of 70 percent domestic sourcing for semiconductor manufacturing equipment used in mature-node chip production by 2027, according to a TrendForce report published on February 20. The directive, backed by a requirement that chipmakers building new production capacity source more than 50 percent of their equipment from domestic suppliers, marks an acceleration of China’s effort to build a self-sustaining semiconductor supply chain in the face of escalating U.S. export controls.
Three Chinese equipment makers now rank in the global top 20 by sales, up from one in 2022. A prototype extreme ultraviolet lithography machine is reportedly under assembly. And a detailed analysis in American Affairs Journal argues that U.S. sanctions have inadvertently triggered what one industry insider calls “the largest unforced technology transfer in history” — by forcing Chinese fabs onto domestic tools, the restrictions have compressed learning curves that might otherwise have taken a decade.
What We Know
The Equipment Push
China’s chip equipment localization campaign is advancing on multiple fronts. In etching, NAURA Technology Group has begun mass production of 28nm tools, while AMEC (Advanced Micro-Fabrication Equipment) is conducting verification of 14nm equipment at SMIC, according to TrendForce. In lithography, SMEE (Shanghai Micro Electronics Equipment) has advanced its 28nm ArF immersion systems to the verification stage.
The progress is reflected in global rankings. NAURA has climbed from eighth place in 2023 to sixth globally among semiconductor equipment vendors, trailing only ASML, Applied Materials, Lam Research, Tokyo Electron, and KLA, as reported by the South China Morning Post. AMEC and SMEE now hold the 13th and 20th positions, respectively, according to DigiTimes, making China the only country besides the United States, Japan, and the Netherlands to place three firms in the global top 20. Domestic semiconductor equipment market share rose from 4.91 percent in 2018 to 19.92 percent in 2023, according to The Korea Times.
Validation cycles for Chinese-developed equipment are reportedly completing in roughly one year, faster than typical timelines for foreign-made tools, per TrendForce.
Manufacturing Scale
Behind the equipment push is a rapidly expanding fab network. Paul Triolo, writing in American Affairs Journal, details two competing production ecosystems: a SMIC-centered complex producing approximately 70,000 wafers monthly at 7nm and below across its Shanghai facilities, and a Huawei-centered ecosystem comprising roughly 2,000 affiliated companies operating with significant government backing. SMIC targets 100,000 total wafers per month by the end of 2026.
Chip output reached 484.3 billion units in 2024, up 85.2 percent from 2020, though Goldman Sachs estimates that domestic suppliers still meet only about 14 percent of China’s semiconductor demand by value, according to The Korea Times.
The Capital Behind It
The effort is backed by enormous state capital. China’s Big Fund Phase 3 has allocated 344 billion RMB (~$47.5 billion) for ecosystem acceleration, exceeding the U.S. CHIPS Act’s $39 billion allocation, according to American Affairs Journal. A separate National Venture Capital Fund targets up to 1 trillion RMB (approximately $138 billion) in total deployment, per American Affairs Journal.
What We Don’t Know
The EUV Question
The most critical gap in China’s semiconductor supply chain remains extreme ultraviolet lithography, the technology required for manufacturing chips at the most advanced nodes (3nm and below). ASML, the Dutch firm that holds a global monopoly on EUV machines, remains off-limits to Chinese buyers under U.S.-led export controls.
China has reportedly assembled a prototype EUV machine using components sourced from older ASML systems, with the government aiming to produce functional chips by 2028, though 2030 is considered more realistic, according to The Korea Times. Triolo describes a secretive “Mt. Everest” program pursuing EUV capability, but notes that no independent verification of functional systems exists, that multiple competing architectures are under development simultaneously, and that critical missing pieces include photoresists, mask-writing capability, and systems integration, per American Affairs Journal.
Yield and Quality
Numbers on factory capacity tell only part of the story. Huawei Ascend AI chip yields at SMIC reportedly remain in single digits, according to American Affairs Journal. The gap between building equipment that works in a lab setting and running it reliably at production scale is where many national semiconductor programs have faltered historically.
Opacity
Triolo emphasizes that opacity is a defining feature of the entire effort. Huawei’s semiconductor operations run through unlisted subsidiaries, media leaks lack transparency, and the Huawei-centered ecosystem resists external assessment by design, as detailed in American Affairs Journal.
Analysis
The strategic picture that emerges is more nuanced than either “China is catching up” or “sanctions are working” narratives suggest.
On the equipment front, the 70 percent target for mature nodes by 2027 is ambitious but not implausible. Mature-process equipment (28nm and above) is technologically less demanding than leading-edge tools, and Chinese firms have demonstrated genuine competence in etching, deposition, and cleaning at these nodes. The mandatory 50 percent domestic sourcing requirement for new fabs creates a captive market that guarantees revenue for domestic toolmakers, even if their products initially lag foreign alternatives in throughput or reliability.
The paradox of the sanctions is becoming harder to ignore. By cutting off Chinese fabs from American, Japanese, and Dutch equipment, the restrictions compressed adoption timelines. Fabs that previously had no commercial incentive to switch from proven ASML or Applied Materials tools to unproven Chinese alternatives now have no choice. Industry analysts have noted that Chinese companies’ technological gap with international leaders is continuously narrowing, and that Chinese suppliers can now cover equipment for almost every production stage except lithography.
For Western equipment makers, the market erosion is measurable. China has historically been ASML’s, Applied Materials’, and Lam Research’s largest single-country revenue source. Each percentage point of localization represents billions in lost addressable market.
The leading-edge story is different. EUV lithography is not a machine but a system of systems — light sources, optics, pellicles, photoresists, computational lithography software — developed over three decades of international collaboration. Replicating that from reverse-engineered components is a qualitatively different challenge from building a competitive etching tool. The 2028-2030 timeline for a functional Chinese EUV system assumes a pace of integration that has no historical precedent.
The most consequential outcome may not be whether China achieves full self-sufficiency, but whether it achieves enough. A semiconductor ecosystem that can produce competitive chips at mature nodes with predominantly domestic equipment — even if it cannot match TSMC or Samsung at 2nm — would fundamentally alter the geopolitical calculus around Taiwan and reshape global supply chains for everything from automobiles to military hardware.