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Howard Liu

China is on track to dramatically slash its deficit in advanced chips over the next decade as domestic foundries rapidly scale up production, though the weak link of lithography threatens to keep full semiconductor independence out of reach, according to US investment bank Goldman Sachs.
The supply of wafers made using 7-nanometre and below advanced processes is projected to grow at a compound annual rate of 46 per cent between 2025 and 2035, far outpacing the 17 per cent growth expected in domestic demand, Goldman analysts said in a report on Monday.
That would narrow the gap between domestic supply and demand to 34 per cent by 2035, from 92 per cent in 2025, according to the investment bank. China’s advanced-node wafer supply is expected to reach 410,000 wafers per month by then, compared with demand of 619,000 wafers.
The expected increase would be driven by aggressive capacity expansion at Semiconductor Manufacturing International Corp (SMIC), China’s largest contract chipmaker, as well as improving production yields.
Goldman’s model assumes SMIC adds monthly capacity of between 30,000 and 50,000 advanced-node wafers each year from 2026 to 2031, before adding another 20,000 wafers per month annually through 2035. It also assumes yields rise from 23 per cent in 2026 to 50 per cent in 2030 and 75 per cent by 2035.
The world’s No 1 foundry, Taiwan Semiconductor Manufacturing Company (TSMC), which started mass-producing 7nm chips in 2018, achieves yields that can exceed 90 per cent, depending on chip design and die size.

The push for domestic chipmaking accelerated after Washington tightened restrictions on Chinese telecoms giant Huawei Technologies in 2020, cutting off its access to TSMC.
Despite subsequent US-led export controls on advanced chipmaking equipment, SMIC was able to produce a 7nm chip for Huawei in 2023. Beijing has continued backing the expansion of both advanced and mature-node capacity, helping to increase the share of chips produced domestically.
China’s chip self-sufficiency rate reached about 70 per cent in June in terms of production volume, compared with 38 per cent in January 2010, according to Goldman, although the gap was much wider when measured by value.
The rapid buildout is expected to fuel another wave of semiconductor investment in China. Goldman forecast that the country’s chip capital expenditure would grow in double digits annually through the end of the decade, reaching US$82 billion in 2030. Its latest 2030 estimate is 79 per cent higher than the forecast made a year ago.
“We remain positive on growing semis capex ahead,” Goldman analysts wrote, citing rising artificial intelligence demand, continued development of the domestic semiconductor ecosystem and a shift towards more advanced chips, packaging and memory products.

The spending boom is also providing a larger market for home-grown equipment suppliers. Goldman expects China’s wafer fabrication equipment market to reach US$53 billion in 2027, with local firms accounting for 38 per cent by value in 2028, up from 26 per cent last year.
Chinese equipment makers have expanded beyond established strengths such as etching and deposition into more challenging categories including ion implantation, inspection and metrology, according to Goldman’s analysis of the domestic supply chain.
Lithography, however, remains the most conspicuous missing link in the domestic equipment ecosystem.
China still relies on Dutch supplier ASML for nearly all of its advanced DUV lithography machines, with even some of those models restricted for export by the US, while access to ASML’s cutting-edge EUV machines is blocked entirely.
State-owned enterprise Shanghai Micro Electronics Equipment Group, the country’s best hope to develop its own advanced lithography systems, still lags far behind its global peers.


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The increase will be driven by aggressive capacity expansion at SMIC, China’s largest contract chipmaker, as well as improving yields


The increase will be driven by aggressive capacity expansion at SMIC, China’s largest contract chipmaker, as well as improving yields.


China’s advanced chip supply to surge by 2035 despite equipment bottlenecks, Goldman says

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The increase will be driven by aggressive capacity expansion at SMIC, China’s largest contract chipmaker, as well as improving yields

The increase will be driven by aggressive capacity expansion at SMIC, China’s largest contract chipmaker, as well as improving yields