China’s 2026 Semiconductor Policy Landscape Review: What It Means for Foreign Firms

China’s 2026 Semiconductor Policy Landscape Review: What It Means for Foreign Firms

China’s semiconductor policy environment has undergone a comprehensive transformation between 2022 and 2026, redefining the operational landscape for foreign semiconductor companies — from chip designers and EDA providers to equipment manufacturers and materials suppliers. The policy framework that emerged by mid-2026 reflects a dual strategic priority: accelerating domestic semiconductor self-sufficiency under the “Made in China 2025” framework while selectively maintaining openness to foreign investment in segments where China’s indigenous capabilities remain insufficient. This review examines the key policy developments of 2025-2026, analyzes their impact across each segment of the semiconductor value chain, and provides a forward-looking assessment for business planning through 2028.

The Evolving Semiconductor Policy Architecture

China’s semiconductor policy is no longer a single document or initiative but a layered architecture spanning multiple government bodies, funding vehicles, and regulatory instruments. By mid-2026, the policy framework operates on four interconnected levels, each with its own set of instruments, responsible agencies, and timelines:

Key Developments in 2025-2026

Big Fund Phase III Launch, May 2025. China’s National Integrated Circuit Industry Investment Fund (colloquially “the Big Fund”) launched its third phase in May 2025, with a registered capital of RMB 344 billion ($47.5 billion) — the largest single semiconductor investment vehicle ever created by any government. Unlike Phase I (2014, $20 billion, focused on fab capacity) and Phase II (2019, $30 billion, expanded to design and equipment), Phase III’s mandate specifically targets semiconductor manufacturing equipment and materials, areas where China’s self-sufficiency is estimated at only 10-15 percent according to SIA data. For foreign firms, Phase III represents both a threat (funding Chinese competitors in equipment and materials) and an opportunity: Phase III includes a co-investment window for foreign-invested enterprises (FIEs) that establish China-based advanced equipment manufacturing or materials R&D, with matching fund provisions of up to 30 percent of project costs.

15th Five-Year Plan semiconductor targets, Q1 2026. The State Council’s preliminary guidelines for the 15th Five-Year Plan (2026-2030), published in January 2026, set semiconductor self-sufficiency targets at 41 percent for AI chips (up from an estimated 25 percent in 2025), 55 percent for general-purpose logic ICs (up from 30 percent), and 70 percent for mature-node (28nm+) chips (up from 50 percent). Morgan Stanley’s projections, widely cited in the policy document, estimate China will reach 86 percent AI chip self-sufficiency by 2030. The plan explicitly calibrates the pace of domestic substitution to avoid disrupting supply to China’s downstream manufacturing sectors — signaling that foreign semiconductor suppliers will retain significant market access through at least 2028, particularly in segments where domestic alternatives are not yet competitive at scale or performance parity.

2025 Foreign Investment Negative List amendments, effective January 2026. The 2025 edition of the Foreign Investment Negative List, published December 2025 and effective January 1, 2026, maintained restrictions on foreign investment in “integrated circuit design” (classified as a restricted category requiring joint ventures with Chinese majority ownership for certain sub-segments) but clarified that fabless semiconductor companies — foreign-owned entities designing chips without owning fabrication facilities — remain permitted under the “encouraged” category for high-tech industries. The key clarification addresses semiconductor equipment manufacturing: previously classified as restricted, certain categories of “advanced process control and metrology equipment” are now listed as “encouraged” for foreign investment when located in designated high-tech development zones, representing a measured opening for foreign equipment companies willing to establish local manufacturing.

“Secure and Controllable” certification expansion, Q2 2026. China’s Cybersecurity Administration (CAC) expanded its “Secure and Controllable” (安全可控, anquan kekong) certification program for semiconductor products in May 2026. Originally focused on AI chips used in smart city and surveillance applications, the program was extended to cover automotive semiconductors, data center processors, and wireless communication chips. Certification requires submission of chip architecture documentation, supply chain mapping, and vulnerability reporting to a CAC-designated evaluation laboratory. For foreign semiconductor companies, certification is voluntary in legal terms but has become de facto mandatory for government procurement and state-owned enterprise (SOE) supply contracts, which account for an estimated 30-40 percent of China’s addressable semiconductor market. Foreign firms including Intel, AMD, and Nvidia submitted certification applications in Q2 2026, with Intel’s Xeon processor line receiving “Secure and Controllable” certification in June 2026.

Impact on Foreign Semiconductor Firms

Equipment and materials suppliers face the most favorable regulatory environment. The combination of Big Fund Phase III’s materials/equipment focus, the Negative List’s reclassification of advanced metrology equipment as “encouraged,” and the 15th Five-Year Plan’s explicit recognition that China cannot achieve equipment self-sufficiency before 2030 creates a window of regulatory openness for foreign equipment and materials firms. Applied Materials, Lam Research, Tokyo Electron, ASML, and KLA are all expanding China-based support operations and service centers to capture this opportunity. The key risk: US export controls limiting which equipment can be sold to Chinese customers constrain the addressable market, but within those bounds, China’s regulatory posture is welcoming to foreign investment and technology partnerships.

EDA and design-IP firms face growing domestic competition but stable market access. China’s domestic EDA ecosystem — led by Empyrean Technology, Xpeedic, and established through acquisitions — reached approximately 25 percent domestic market share by early 2026, according to industry estimates. Synopsys, Cadence, and Siemens EDA retain the dominant share, particularly for advanced-node design flows at 7nm and below. The policy environment remains stable, with no indication of access restrictions for foreign EDA tools — an acknowledgment that China’s domestic fabless companies remain heavily dependent on Western EDA tools for their own chip designs, and restricting foreign EDA would harm China’s own semiconductor design industry more than it would help domestic competitors.

Fabless and foundry foreign firms face the most complex policy terrain. Foreign fabless semiconductor companies selling into China navigate dual pressures: on the sales side, China’s domestic preference policies and “Secure and Controllable” certification create procurement hurdles; on the supply side, US export controls increasingly restrict which chips can be sold to Chinese customers. Foundry-level foreign investment in China — such as TSMC’s existing Nanjing 16nm/28nm fab and UMC’s Xiamen 28nm fab — operates under specific grandfather provisions but faces restrictions on expanding capacity or upgrading to advanced nodes without Chinese government and US BIS dual approvals.

Forward Outlook Through 2028

1. Short-term (through 2027): Regulatory stability. The 15th Five-Year Plan’s self-sufficiency targets are ambitious but explicitly phased to avoid supply disruption. Foreign semiconductor suppliers in segments where domestic substitution remains incomplete — advanced process control equipment, EDA tools for 5nm-and-below design, high-bandwidth memory, advanced packaging — will enjoy relatively stable market access. The “Secure and Controllable” certification process will become standardized with predictable timelines, reducing uncertainty for foreign applicants.
2. Medium-term (2028-2029): Progressive substitution pressure. As Big Fund Phase III investments mature (a typical lead time of 3-4 years from investment to production impact), domestic competition in equipment and materials will intensify. Foreign firms that have established local manufacturing or R&D operations under the “encouraged” investment category will be better positioned to maintain market share through local value-add that qualifies for procurement preference exemptions.
3. Long-term (2030+): Structural separation risk. If China achieves its projected 86 percent AI chip self-sufficiency by 2030 and self-sufficiency in 28nm+ logic and memory, the policy environment may shift toward more aggressive import substitution in remaining segments. Foreign firms should model a 2030+ scenario where only niche high-end equipment, leading-edge EDA, and specialized materials retain significant unrestricted market access.
4. Geopolitical wildcards. US export control expansions (potential December 2026 or 2027 controls on legacy logic chips, memory chips, and associated equipment in broad categories) remain the largest exogenous risk. A further escalation could trigger reciprocal Chinese restrictions on foreign semiconductor operations in China, creating an asymmetric impact on firms like Samsung Xi’an and TSMC Nanjing that have high fixed-cost operations in China.

Where to Go From Here

China’s 2026 semiconductor policy landscape is characterized by calibrated openness in segments where domestic capabilities remain insufficient, combined with accelerating domestic preference in strategically prioritized areas. Foreign firms must navigate both the opportunities in the encourage categories and the risks of progressive substitution.

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China’s 2026 Semiconductor Policy Landscape Review: What It Means for Foreign Firms — first published on China Gateway 360. Last updated: July 2026.