China aims to close its advanced chip supply gap significantly by 2035 as domestic foundries ramp up production and improve yields, yet reliance on foreign lithography technology persists.
- China to boost advanced-node wafer supply by 46% annually through 2035
- Supply-demand gap to reduce from 92% to 34% in a decade
- Lithography equipment remains critical foreign dependency
What happened
Goldman Sachs released a report highlighting China's projected growth in producing advanced semiconductor wafers manufactured at 7-nanometre and smaller processes. The supply of these wafers is expected to expand at a 46 percent compound annual rate from 2025 to 2035, significantly outpacing domestic demand growth of 17 percent. This ramp-up is led by China’s largest contract chipmaker, Semiconductor Manufacturing International Corp (SMIC), which plans to dramatically increase monthly wafer production capacity.
Alongside capacity expansion, the report anticipates improvements in production yields, from 23 percent in 2026 to 75 percent by 2035. Despite the growth, China’s domestic supply will still fall short of demand by about 34 percent in 2035, improved from a 92 percent shortfall in 2025. The report notes that while China is making strides toward self-sufficiency, key challenges remain in acquiring advanced lithography tools essential for cutting-edge chip fabrication.
Why it matters
China’s ambition to ramp up domestic chip production reflects its strategic drive toward semiconductor independence, especially following US-led export restrictions that targeted technology transfer to Chinese telecom giant Huawei and others. Achieving greater chip autonomy would reduce China's reliance on foreign supply chains and enhance technology sovereignty in a geopolitically sensitive industry.
The semiconductor sector’s rapid growth is expected to trigger a surge in capital expenditures, projected to reach $82 billion by 2030—marking a significant increase from prior forecasts. This investment boost supports not only foundry capacity but also the expansion of homegrown semiconductor equipment manufacturers. These developments could reshape the competitive landscape of the global chip industry and create new opportunities for Chinese suppliers despite ongoing technological gaps.
What to watch next
Key to China's future progress will be overcoming its dependence on foreign lithography equipment, particularly the high-end extreme ultraviolet (EUV) systems dominated by Dutch supplier ASML, which remain inaccessible due to export controls. Shanghai Micro Electronics Equipment Group is China’s primary effort to develop indigenous lithography tools but still lags global competitors in this critical technology.
Observers should also monitor how China manages yield improvements at existing fabs, expansion of capacity at SMIC and other domestic foundries, and government policy support for semiconductor capital expenditure. The evolution of China’s wafer fabrication equipment market, especially the growing share accounted for by local companies, will be another important indicator of advancement toward greater self-reliance in semiconductor manufacturing.