Via responsibleinvestment.org
Beijing's semiconductor localization drive is reshaping global supply chains and creating a new investment thesis around Chinese chipmakers
China isn’t just weathering US chip sanctions anymore. It’s building an entire parallel semiconductor ecosystem, and the speed of that pivot is catching the attention of major asset managers.
VanEck’s JP Lee flagged the trend in recent remarks: China is actively encouraging its companies to buy domestically produced chips as a direct counter to Washington’s export controls. The strategy goes well beyond gentle suggestions. Beijing has implemented procurement mandates, restricted purchases of specific foreign chips, and started listing homegrown AI processors on official government procurement lists for the first time.
The localization playbook #
A 50% domestic sourcing requirement for semiconductor manufacturing equipment in chip fabs has been put in place, essentially forcing companies that build advanced chip facilities to source half their tools from Chinese suppliers.
As of January 2026, China has limited purchases of Nvidia chips to “special circumstances,” directing firms to steer clear of certain models like the H20. The H20 was Nvidia’s specifically designed China-compliant chip, a product engineered to thread the needle of US export rules.
Chinese AI chips were added to official procurement lists starting in December 2025. When the government signals that domestic chips are good enough for its own use, it gives private companies the political cover, and the commercial incentive, to follow suit.
US export controls on advanced chips started tightening in earnest in October 2022, with further expansions rolling through 2025.
VanEck’s bet on the buildout #
VanEck launched its China Semiconductor ETF, ticker SMHC, in June 2026. The fund targets 25 leading Chinese semiconductor companies, offering investors direct exposure to what JP Lee and the VanEck team see as a structural growth story driven by policy tailwinds.
Global supply chain implications #
China’s localization drive is fragmenting the global semiconductor supply chain. Before 2022, the chip industry operated on a broadly integrated model: design in the US, manufacturing concentrated in Taiwan and South Korea, equipment from the US, Europe, and Japan, and customers everywhere.
US companies like Nvidia, Qualcomm, and Intel are losing access to one of their largest markets. Nvidia’s China revenue, once a significant portion of its data center business, faces an ever-shrinking addressable market as Beijing’s restrictions on foreign chip purchases layer on top of Washington’s export controls.
For Chinese firms like SMIC, Huawei’s HiSilicon, and AMEC, investors should pay close attention to the pace at which Chinese fabs actually hit the 50% domestic equipment threshold, and whether Chinese AI chip performance improves enough for major tech companies like Baidu, Alibaba, and Tencent to genuinely adopt them at scale. Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our