Can foreign companies fully own Semiconductor operations in China?

The short answer is: Yes, most semiconductor activities are permitted for 100% foreign ownership in China, but with critical exceptions. According to the Special Administrative Measures (Negative List) for Foreign Investment Access (2024 edition) and the 2025 edition published in February 2025, approximately 80% of semiconductor value-chain activities — including integrated circuit (IC) design, packaging, testing, equipment manufacturing, materials, and electronic design automation (EDA) software — fall under “permitted” or “encouraged” categories open to wholly foreign-owned enterprises (WFOEs, 外商独资企业, wàishāng dúzī qǐyè). However, the manufacture of integrated circuits using process nodes below 28 nanometers (nm) is a restricted sub-sector that requires a Chinese partner or special government approval, and certain compound semiconductor substrates and security-related chips face outright prohibitions or additional review. This article provides a detailed breakdown of what foreign semiconductor companies can and cannot own outright in China as of mid-2026, referencing the PRC Foreign Investment Law (2019), the Negative List (2025-2026 edition), the Catalogue of Encouraged Industries for Foreign Investment (2022 edition, updated), and the Company Law (2024 revision).

1. Direct Answer / Overview: Can You Fully Own Your Semiconductor Operations?

Yes — with nuance. The vast majority of semiconductor sub-sectors are open to 100% foreign ownership through a WFOE structure. However, China maintains a Negative List (外商投资准入特别管理措施, wàishāng tóuzī zhǔnrù tèbié guǎnlǐ cuòshī) that restricts or prohibits foreign investment in certain sensitive areas. For semiconductors, the key dividing line is manufacturing technology node and end-use application.

2. The Negative List (2025-2026 Edition) and Semiconductor

The Special Administrative Measures (Negative List) for Foreign Investment Access (外商投资准入特别管理措施, wàishāng tóuzī zhǔnrù tèbié guǎnlǐ cuòshī) is the single most important regulatory document for foreign investors in China. The 2025 edition, released by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) in February 2025 and effective from March 1, 2025, continues a trend of progressive liberalization while retaining certain strategic restrictions.

For the semiconductor sector, the Negative List specifically restricts: “Integrated circuit manufacturing with a line width of less than 28 nanometers” (线宽小于28纳米的集成电路制造, xiànkuān xiǎoyú 28 nàmǐ de jíchéng diànlù zhìzào). This restriction means that any foreign investor wishing to build or operate a fabrication plant (fab) using process technology below 28nm must either form a joint venture with a Chinese partner (equity share negotiable but typically requiring the Chinese party to hold a meaningful stake) or obtain special approval from NDRC and MOFCOM. In practice, special approval has rarely been granted since 2021, when US-China semiconductor tensions escalated.

The Catalogue of Encouraged Industries for Foreign Investment (鼓励外商投资产业目录, gǔlì wàishāng tóuzī chǎnyè mùlù) serves as the counterpart to the Negative List. It lists semiconductor sub-sectors where foreign investment is not only permitted but actively incentivized through tax holidays, reduced land costs, expedited approvals, and access to government R&D funds. The 2022 edition and its 2024 interim update include “integrated circuit design,” “integrated circuit packaging and testing,” “manufacturing of advanced semiconductor equipment,” “production of high-purity electronic chemicals,” and “development of EDA tools” as encouraged activities.

Under Article 28 of the PRC Foreign Investment Law (外商投资法, wàishāng tóuzī fǎ, effective January 1, 2020), foreign investors are prohibited from investing in sectors on the Negative List’s “prohibited” column and must satisfy the conditions listed in the “restricted” column. The 2025 edition reduced the total number of restricted/prohibited items from 31 to 27, with several items in manufacturing removed entirely — but the 28nm semiconductor restriction was retained.

3. Restricted Sub-Sectors and Their Requirements

Foreign investors must navigate several restricted sub-sectors with care. The following activities face specific barriers:

1. Advanced-Node IC Manufacturing (<28nm): The headline restriction. A Chinese joint-venture partner is required, typically an SOE (state-owned enterprise) such as SMIC (Semiconductor Manufacturing International Corporation), a provincial-level investment platform, or a state-backed fund such as the National Integrated Circuit Industry Investment Fund (Big Fund, 国家集成电路产业投资基金, guójiā jíchéng diànlù chǎnyè tóuzī jījīn). Foreign ownership may be capped at 49% in practice, though the Negative List does not specify a percentage — it simply requires “compliance with the provisions on foreign investment access” and a Chinese party holding “control” or “relative control” as determined by NDRC on a case-by-case basis. Approval timelines typically range from 3 to 8 months and involve NDRC, MOFCOM, and the Ministry of Industry and Information Technology (MIIT).
2. Chip Encryption and Security ICs: Integrated circuits that implement cryptographic functions (密码芯片, mìmǎ xīnpiàn) are subject to the Cryptography Law of the PRC (密码法, mìmǎ fǎ, effective January 1, 2020) and the Cybersecurity Law (网络安全法, wǎngluò ānquán fǎ, 2017). Any foreign investor designing or manufacturing encryption chips must undergo a security review by the Cyberspace Administration of China (CAC). In practice, this review can take 6-12 months and may result in restrictions on the types of cryptographic algorithms that can be implemented, or requirements to use CAC-approved national cryptographic standards (SM2, SM3, SM4).
3. Compound Semiconductor Materials (GaN, SiC): The manufacturing of gallium nitride (GaN) and silicon carbide (SiC) substrates — critical for power electronics and radio-frequency (RF) applications — falls into a grey zone. While not explicitly listed on the Negative List, these materials are classified as dual-use items under the PRC Export Control Law (出口管制法, chūkǒu guǎnzhì fǎ, effective December 1, 2020) and may trigger a national security review under Article 20 of the Foreign Investment Law if the foreign investor is from a country subject to Chinese export controls.
4. Satellite Communications Chips: The Negative List explicitly prohibits foreign investment in satellite broadcasting and communications infrastructure. Chips designed specifically for satellite communication applications are therefore indirectly restricted. A WFOE in this space is not viable; a joint venture with a Chinese partner holding at least 51% equity is the minimum requirement.
5. Military-Use or Dual-Use Chips: Any semiconductor product intended for military, surveillance, or weapons applications is automatically prohibited for foreign ownership under Article 33 of the Foreign Investment Law and the Military-Industrial Export Control List. A WFOE in this area is not legally possible.

4. Encouraged and Permitted Sub-Sectors

The majority of semiconductor activities are fully open and may even qualify for government incentives. The following sub-sectors are classified as “encouraged” (鼓励类, gǔlì lèi) under the Catalogue of Encouraged Industries, meaning a WFOE can be established without a Chinese partner and can access tax benefits, import duty exemptions, and R&D grants:

• IC Design (IC设计, jíchéng diànlù shèjì): Fully open for 100% foreign ownership. This covers digital, analog, mixed-signal, RF, and memory chip design for commercial applications. Companies such as AMD, NVIDIA (via its Shanghai design center), Qualcomm, and STMicroelectronics have operated WFOE design houses in China for years. The Shanghai Pudong New Area and Beijing Zhongguancun Science Park offer additional incentives for IC design WFOEs, including 15% reduced corporate income tax rates for qualifying “key software and IC design enterprises” under Caishui [2020] No. 45.
• OSAT (Outsourced Semiconductor Assembly and Test, 封装测试, fēngzhuāng cèshì): Fully open. Major global OSAT providers including ASE Technology Holding, Amkor Technology, and JCET Group (a Chinese company) operate WFOE packaging and testing facilities. No Chinese partner is required.
• Semiconductor Equipment Manufacturing: Fully open and strongly encouraged. China is aggressively building domestic equipment capabilities. Foreign equipment makers such as Applied Materials, Lam Research, Tokyo Electron, and ASML (for certain non-EUV equipment) operate WFOE service, support, and light manufacturing entities. However, foreign companies must implement robust export controls compliance programs to ensure compliance with both PRC laws (Export Control Law, Art. 12) and their home-country regulations (e.g., US BIS EAR, EU Dual-Use Regulation).
• Semiconductor Materials (Wafers, Chemicals, Specialty Gases): Generally open. Production of high-purity electronic chemicals, CMP slurries, photoresists, and specialty gases is listed as an encouraged activity. Foreign companies such as Merck, BASF, Linde, and Air Liquide operate WFOE facilities in China producing semiconductor-grade materials. No Chinese partner is required.
• EDA Software (电子设计自动化, diànzǐ shèjì zìdònghuà): Fully open. Synopsys, Cadence, and Siemens EDA (Mentor Graphics) have WFOE operations in China offering EDA tools and IP licensing. The Catalogue of Encouraged Industries explicitly includes “development of EDA tools” as an encouraged activity. The PRC Company Law (2024 revision, Art. 143) supports the establishment of technology-focused wholly foreign-owned companies.
• AI Chips for Commercial Use: Generally open. Design of application-specific integrated circuits (ASICs) for artificial intelligence workloads — such as inference accelerators, GPU-like processors, and neural processing units (NPUs) — is not restricted as long as the end use is commercial (data centers, automotive, consumer electronics) rather than military or surveillance. Startups such as Horizon Robotics and Cambricon have attracted foreign venture capital through WFOE+VIE structures, though pure foreign incorporation via WFOE is standard and simpler.

5. Alternative Structures When 100% Ownership Is Not Possible

When the Negative List or other regulations block 100% foreign ownership, investors have several alternative entry structures. Each comes with distinct legal, operational, and risk profiles:

1. Joint Venture (JV) with a Chinese Partner: The most common alternative for restricted sub-sectors (e.g., <28nm fabs). The Chinese partner may be an SOE (e.g., SMIC, Huahong Grace), a provincial government investment platform, or a private-sector semiconductor company. Equity shares are negotiated and documented in a JV contract governed by the PRC Company Law (2024 revision, Art. 147-178). Foreign investors typically seek at least 49% equity and contractual veto rights over key decisions (budget, technology roadmap, IP licensing) through the JV agreement and articles of association.
2. Variable Interest Entity (VIE) Structure: Historically used by foreign investors to gain exposure to restricted Chinese sectors (e.g., value-added telecom services, certain internet businesses). However, the VIE structure (可变利益实体, kěbiàn lìyì shítǐ) has come under intense scrutiny since 2022-2024. The CSRC issued new regulations in 2023 requiring VIE disclosures in offshore listings, and the Foreign Investment Law’s Article 2 broadly defines “foreign investment” to include VIE-type contractual arrangements. In 2024, several court cases in China cast doubt on the enforceability of VIE contracts. This structure is now considered technically available but legally risky for semiconductor investments and is not recommended without extensive legal due diligence.
3. Technology Licensing Agreement Without Entity: A foreign company can license its semiconductor IP, manufacturing process technology, or design tools to a Chinese fab or design house without establishing a legal entity in China. This is governed by the PRC Technology Contract Law and the PRC Regulations on the Administration of Technology Import and Export. The licensor must register the technology import contract with MOFCOM within 60 days of execution (Technology Import and Export Regulations, Art. 17). Royalty rates are freely negotiable but subject to withholding tax (10% standard, reduced under applicable tax treaties).
4. Contract Manufacturing Through a Chinese Foundry: Rather than owning a fab, a foreign IC design company can manufacture its chips at a Chinese foundry (e.g., SMIC, Hua Hong) under a foundry services agreement. This avoids direct foreign investment in restricted manufacturing activities while still accessing China’s advanced-node capacity (subject to export controls and foundry capacity availability). The foreign company retains 100% ownership of its design IP and brand.
5. Joint Development Agreement (JDA) with IP Sharing: A JDA between a foreign semiconductor company and a Chinese partner for co-development of new process nodes, device structures, or packaging technologies. The JDA typically includes a foreground IP sharing framework, background IP licenses, and a governance mechanism. This structure is common for advanced-node R&D (e.g., below 28nm) where pure WFOE is restricted but collaborative R&D is encouraged under the PRC Science and Technology Progress Law (科学技术进步法, kēxué jìshù jìnbù fǎ, 2021 revision).

6. Approval Process for Restricted Semiconductor Investment

When a foreign semiconductor investment falls into a restricted category (e.g., <28nm fab or security chips), the approval process involves multiple PRC government agencies and typically takes 3 to 8 months. The key steps are:

1. MOFCOM Foreign Investment Filing or Approval: For restricted items, the investor must submit an application for foreign investment approval (not merely a filing, which suffices for permitted/encouraged sectors). The application includes a detailed business plan, technology description, financial projections, and the proposed JV structure. MOFCOM reviews the application within 30 working days (Foreign Investment Law Art. 28-30; Implementing Regulations Art. 12-18).
2. NDRC Project Approval (for restricted industries): NDRC (National Development and Reform Commission) conducts a separate review focused on national security, industrial policy alignment, and technology transfer implications. The NDRC review is the most substantive and can take 60-120 working days. It requires a project application report (项目申请报告, xiàngmù shēnqǐng bàogào) covering technology details, environmental impact, land use, and energy consumption (NDRC Order No. 11, 2023).
3. MIIT Consultation (Pre-Filing): While not a formal approval step in all cases, investors are strongly advised to conduct a pre-filing consultation with the Ministry of Industry and Information Technology (MIIT, 工业和信息化部, gōngyè hé xìnxīhuà bù). MIIT can provide an informal assessment of whether the proposed investment aligns with China’s semiconductor development roadmap and whether it would likely receive NDRC/MOFCOM approval. This step can save 2-4 months by identifying issues early.
4. National Security Review (if applicable): Under Article 20 of the Foreign Investment Law, any foreign investment that “affects or may affect national security” is subject to a national security review administered by the National Security Review Inter-Ministerial Committee (led by NDRC and MOFCOM). Semiconductor investments involving dual-use technologies, encryption, or military-capable chips are routinely referred for security review. The review has no statutory time limit but averages 4-8 months. If the investment is found to threaten national security, it may be prohibited or subject to remedial conditions (Security Review Measures Art. 12-18).
5. SAMR Registration: After MOFCOM approval, NDRC project approval, and any applicable security review, the investor registers the company (WFOE or JV) with the State Administration for Market Regulation (SAMR). SAMR registration is typically a 5-10 working day process involving name pre-approval, business scope definition, and articles of association filing (PRC Company Law 2024, Art. 29-35).

The total cost of the approval process for a restricted semiconductor investment — including legal fees, notarization, translation, and government filing fees — typically ranges from RMB 800,000 to RMB 2,500,000 (approximately USD 110,000 to USD 345,000), depending on the complexity of the project and the number of government agencies involved.

7. Recent Policy Trends (2024-2026)

China’s semiconductor policy has undergone significant shifts between 2024 and 2026, reflecting both domestic industrial priorities and escalating US-China technology competition. Key trends affecting foreign investors include:

• Progressive Negative List Opening: The 2025 edition of the Negative List removed foreign ownership restrictions in several manufacturing sectors (e.g., publishing, printing, certain audio-visual equipment) but retained the 28nm semiconductor restriction. The 2026 edition (expected Q1 2026) is rumored to potentially relax restrictions on 14nm-28nm manufacturing for foreign investors focused on mature-node capacity, though no official draft has been released as of mid-2026.
• Domestic Substitution Drive (国产替代, guóchǎn tìdài): China’s push for domestic semiconductor self-sufficiency has created a dual dynamic. On one hand, foreign companies in non-advanced nodes (≥28nm) and upstream materials/equipment are actively welcomed and incentivized to fill domestic gaps. On the other hand, foreign investors in advanced-node fabs (<28nm) face increasing scrutiny as China prioritizes indigenous technology development through SMIC, Huawei's HiSilicon, and the Big Fund portfolio companies.
• Big Fund Phase III (RMB 344 Billion): The China National Integrated Circuit Industry Investment Fund Phase III (国家集成电路产业投资基金三期, guójiā jíchéng diànlù chǎnyè tóuzī jījīn sān qī), launched in May 2024 with RMB 344 billion (approximately USD 47.5 billion), is actively seeking foreign technology partners. Foreign companies that contribute advanced IP, equipment, or process know-how can participate in Big Fund III-backed projects through JVs or technology licensing arrangements, potentially accessing significant co-investment capital.
• US CHIPS Act Countermeasures: The US CHIPS and Science Act (2022) and subsequent export controls on advanced semiconductor equipment and AI chips have prompted China to strengthen its own semiconductor ecosystem. For US-headquartered semiconductor companies, establishing operations in China now requires navigating both PRC regulations and US BIS export controls (15 CFR Part 734-744), including deemed export restrictions on US-origin technology shared with Chinese nationals in China-based R&D centers.
• Company Law 2024 Revision: The revised PRC Company Law (effective July 1, 2024) introduced significant changes relevant to foreign investors, including tightened capital contribution rules (5-year maximum contribution period for registered capital, Art. 47), enhanced director liability (Art. 191), and simplified company registration procedures (Art. 29-35). Foreign semiconductor WFOEs must ensure their articles of association and shareholder agreements comply with the new law, particularly regarding capital contributions and governance structures.
• MIIT’s “Guidance Catalogue for the Development of the Integrated Circuit Industry” (2025): Published by MIIT in early 2025, this guidance document provides a non-binding roadmap for foreign and domestic investment in the semiconductor sector. It explicitly encourages foreign participation in “advanced packaging technologies” (3D packaging, chiplets), “wide-bandgap semiconductor materials” (GaN, SiC), and “AI chip design tools.” It also advises caution on investments in “mature-node capacity expansion” to avoid overcapacity — a sign that China is becoming more selective even in permitted sub-sectors.

8. Practical Recommendations for Foreign Investors

Based on the regulatory framework and market conditions described above, here are targeted recommendations for foreign semiconductor companies evaluating a China market entry:

1. Engage a Chinese law firm for Negative List classification. The first step is a formal legal opinion from a qualified PRC law firm (e.g., Fangda Partners, JunHe, King & Wood Mallesons, Zhong Lun) classifying your specific semiconductor activity under the Negative List and the Catalogue of Encouraged Industries. This classification determines whether a WFOE is possible or a JV/alternative structure is required. Budget RMB 200,000-500,000 (USD 28,000-70,000) for this engagement.
2. For advanced-node fabs (<28nm) or restricted activities: form a JV with a local SOE partner or state-backed fund. The most viable path is a joint venture with a Chinese SOE (SMIC, Huahong) or a provincial-level IC investment platform (e.g., Shanghai IC R&D Fund, Beijing E-Town Capital, Shenzhen Capital Group). Structure the JV so that the foreign party retains IP ownership and operational control through contractual mechanisms under the JV agreement and the PRC Company Law.
3. For IC design companies: a WFOE is the standard and preferred structure. There is no regulatory reason to take on a Chinese partner for commercial IC design. Establish a WFOE in Shanghai Pudong (Zhangjiang Hi-Tech Park), Beijing (Zhongguancun), or Shenzhen (Nanshan District) to access local talent pools, R&D subsidies, and reduced corporate income tax rates (15% for qualifying “key IC design enterprises”).
4. For OSAT (packaging and testing): a WFOE is standard. No Chinese partner required. Locate in Jiangsu Province (Kunshan, Suzhou Industrial Park) or Chengdu (Sichuan Province) which offer specific incentives for OSAT operations including land subsidies and expedited customs clearance for imported equipment.
5. For semiconductor equipment companies: establish a WFOE with a robust export controls compliance program. This is critical for equipment companies subject to US BIS, EU, or Japanese export controls. Appoint a trade compliance officer responsible for screening customers against PRC and home-country restricted party lists, and implement technology transfer controls under the PRC Export Control Law Art. 12-16.
6. Submit a technology description letter to MOFCOM for pre-clearance. Before committing significant capital, submit an informal technology description letter (技术说明函, jìshù shuōmíng hán) to MOFCOM’s Department of Foreign Investment Administration requesting pre-clearance guidance on whether your proposed activity is restricted. This non-binding advisory opinion can prevent costly mistakes and typically costs only the legal fees for drafting the submission (RMB 50,000-100,000).
7. Plan for an 8-12 month timeline for restricted investments. If your investment falls into a restricted category, budget 8-12 months from initial legal engagement to SAMR registration, and factor in an additional 4-8 months if a national security review is triggered. For permitted/encouraged WFOEs, the timeline is 2-4 months.
8. Leverage Big Fund III and local government matching funds. For projects involving advanced packaging, wide-bandgap materials, or AI chip design, proactively approach the Big Fund III management team (Huaxin Investment) and relevant provincial IC funds. Foreign companies contributing unique IP or process technology can negotiate co-investment terms where the Chinese fund contributes capital in exchange for a minority equity stake or royalty arrangement, rather than operational control.

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