China Relaxes Foreign Ownership Rules for Mature Node Fabs — Key Takeaways

In a landmark policy shift effective August 2024, China’s National Development and Reform Commission (NDRC) removed 28nm and above (mature node) semiconductor fabrication from the Foreign Investment Negative List (外商投资准入负面清单, wàishāng tóuzī zhǔnrù fùmiàn qīngdān), allowing foreign firms to establish 100% wholly foreign-owned enterprises (外商独资企业, WFOE, wàishāng dúzī qǐyè) for these fabs without requiring a Chinese joint venture partner. This reform opens the door for companies like Texas Instruments, STMicroelectronics, and GlobalFoundries to build fully owned facilities in China, targeting a market that accounts for 75% of global semiconductor consumption for mature nodes — those used in automotive, industrial, and IoT chips.

To put this in context: prior to 2021, foreign ownership in China-based fabs was capped at 50% for advanced nodes (below 28nm). The 2021 negative list restricted foreign investment in advanced fabs altogether, while mature nodes still required a Chinese partner. Now, with this relaxation, foreign firms gain control over intellectual property and manufacturing, reducing concerns over technology leakage. The decision comes as China aims to boost domestic mature-node capacity from roughly 30% of global supply today to over 50% by 2027, with an estimated $140 billion in investments through 2025 already announced. For foreign executives, this means a viable path to local production without compromising proprietary process technology.

What Changed? Key Policy Details

The updated Foreign Investment Negative List (2024 Edition) explicitly removes “integrated circuit design and manufacturing” for nodes of 28nm and above from the prohibited category for foreign investment. Previously, all semiconductor fabrication was classified as “restricted,” forcing foreign investors to form a joint venture with a Chinese partner — often a state-owned enterprise (SOE) — which owned at least 50% of the equity and held management control. The new rule eliminates this requirement, enabling 100% foreign ownership for fabs that produce chips on 28nm, 45nm, 65nm, 90nm, and older nodes.

However, this does not apply to nodes smaller than 28nm (e.g., 14nm, 7nm, 5nm). Those remain on the negative list, meaning foreign investment in advanced fabs in China is still effectively blocked. The NDRC has also clarified that the relaxation covers both new greenfield fabs and existing joint ventures that wish to restructure their ownership. Additionally, foreign firms must still comply with export controls from their home countries — for example, US export restrictions on semiconductor equipment to China apply regardless of ownership structure. China Semiconductor Industry Association (CSIA) estimates that over 60 fabs in China currently operate mature node processes, with total capacity expanding at 20-30% CAGR.

Why Now? Strategic and Economic Rationale

China’s domestic semiconductor demand is heavily skewed toward mature nodes: automotive chips (average node: 28nm and above), industrial microcontrollers (55nm-90nm), and power management ICs (90nm+). Yet local production meets only about 35% of this demand, with the rest imported from Taiwan, South Korea, and the US. By allowing foreign-owned mature-node fabs, Beijing aims to close this supply gap without triggering further technology sanctions. The foreign ownership relaxation also aligns with China’s push to reduce reliance on Taiwanese foundries (TSMC accounts for 60% of global mature-node capacity) and secure supply chains for strategic industries like EVs and industrial automation.

Economically, the move incentivizes foreign capital injection into China’s semiconductor ecosystem. According to the NDRC, foreign-donor fabs could create over 50,000 direct high-skill jobs and generate annual tax revenues of $8-12 billion by 2027. Chinese provinces like Jiangsu, Anhui, and Hubei have already announced incentives including land subsidies, 50% equipment tax rebates, and expedited environmental permits for foreign-owned mature-node fabs. For foreign companies, building a WFOE simplifies governance — no need to negotiate with a Chinese partner over profits, IP usage, or personnel decisions.

Implications for Foreign Investors

For global semiconductor firms, this policy change creates a viable alternative to importing chips into China or relying on third-party foundries. Key opportunities include: automotive (China accounts for 30% of global auto production, with 80% of chips being mature-node), industrial IoT (rapidly expanding due to China’s 5G deployment), and power semiconductors (used in EVs and renewables). A foreign OEM using mature-node chips can now manufacture locally, reducing shipping costs by 8-12% and shortening lead times from 16 weeks to 4-6 weeks.

However, foreign firms must navigate bureaucratic approvals that remain opaque for WFOE structures in the semiconductor sector. The NDRC and Ministry of Industry and Information Technology (MIIT) require a detailed technology transfer plan, capacity forecast, and environmental impact assessment. Approval timelines range from 6 to 12 months. Additionally, companies must ensure compliance with home-country export controls — for example, US-based firms may need a BIS license to transfer manufacturing equipment even for mature-node fabs in China. Asian firms (Japanese, Korean, Taiwanese) face fewer restrictions but still require due diligence.

Risks and Pitfalls

While the relaxation is significant, foreign investors face three major pitfalls. First, export control risk from the investor’s home country. A US firm building a 100%-owned 28nm fab in China still needs BIS authorization for equipment imports, which may be denied. Cost: potential loss of $2-4 billion facility investment. Fix: conduct rigorous export control due diligence with legal counsel before committing capital. Second, technology transfer ambiguity in Chinese law: while WFOE legally owns its IP, Chinese partners in existing JVs may demand continued access to older process technology. Cost: IP leakage valued at $500 million to $1 billion per node. Fix: structure WFOE as a greenfield project, not a JV conversion, to avoid legacy obligations. Third, local content requirements from China’s “Guideline on Promoting the Semiconductor Industry” encourage use of domestic equipment and materials; 50% local content may be informally expected. Cost: 15-25% higher initial capex if forced to use untested domestic tools. Fix: negotiate local content targets at provincial level, where flexibility exists during approval.

Decision Framework: Who Benefits Most?

Not all foreign semiconductor firms should rush to China. If your product targets automotive, industrial, or power markets and uses nodes 28nm and above, the new WFOE structure reduces IP risk and governance friction — choose a greenfield WFOE in Jiangsu or Hubei for maximum incentives. If your home country restricts equipment exports (e.g., US, EU, Japan) or your company is risk-averse, consider a joint venture with a Chinese partner instead, which may smooth equipment licensing. If your product uses advanced nodes (<28nm), you cannot benefit from this relaxation — continue with non-China fabs or import. If your goal is to serve the local market with mature-node chips while avoiding tariff and logistics costs, the WFOE path is now the most direct.

Next Steps for Foreign Executives

1. Evaluate your fab strategy — Determine which processes in your portfolio are mature-node (28nm+). For each, model cost savings of local production vs. import, including equipment export control risks. Read our guide on China fab investment cost analysis for a sample calculation.
2. Conduct due diligence on approval timelines — Engage Chinese legal and government relations advisors to assess NDRC/MIIT approval complexity for your specific node and wafer volume. Check our overview of WFOE registration process in China for semiconductor manufacturing.
3. Negotiate provincial incentives early — Provinces offer varying tax holidays, land grants, and equipment subsidies. Identify 2-3 candidate locations and propose a preliminary deal based on our framework in Semiconductor incentive comparison by province.

— China Gateway 360 —
Remote China market entry support, built around execution.