Domestic Foundries Are Rapidly Expanding Their Capacity
The latest analysis by US-based investment bank Goldman Sachs stated that China aims to largely reduce its supply shortfall in the advanced semiconductor market over the next 10 years. As domestic foundries rapidly increase their production, the supply of silicon wafers produced using advanced processes at 7 nanometers and below is projected to grow at a compound annual rate of 46% between 2025 and 2035. The expected 17% increase in domestic demand over the same period, meanwhile, is estimated to lag significantly behind supply growth.
This anticipated acceleration in production is expected to narrow the advanced chip supply shortfall in China’s domestic market. The domestic supply-demand gap, which stood at 92% in 2025, is expected to decline to 34% by 2035. The bank’s data shows that China’s advanced-node silicon wafer supply will reach 410,000 units per month, while the country’s total monthly demand will stand at 619,000 units.
SMIC Accelerates Capacity Investments
The main source of the projected strong increase in supply will be aggressive facility expansion efforts and productivity gains by China’s largest foundry manufacturer, SMIC (Semiconductor Manufacturing International Corp). Aiming to meet rising demand for artificial intelligence and high-performance computing hardware, the company continues its foundry investments without interruption. SMIC had focused on increasing the capacity of its facilities, expanding production volumes and extending order delivery times due to demand for artificial intelligence chips in the sector.
Goldman Sachs’ projection model estimates that SMIC will add between 30,000 and 50,000 new silicon wafers per month to its advanced-node capacity each year between 2026 and 2031. After 2031, an additional 20,000 units per year is expected to be added to monthly capacity through 2035. The model also assumes that SMIC’s yield rate, which stands at 23% in 2026, will rise to 50% in 2030 and 75% in 2035.
For comparison, the world’s largest foundry, TSMC, began mass production of 7-nanometer chips in 2018 and can achieve a yield rate of over 90%, depending on the chip design.
Lithography Equipment Shortage Hinders Complete Independence
Despite this major increase in domestic production volume, restrictions on access to lithography equipment remain the biggest obstacle to China’s semiconductor industry achieving complete independence. Unable to access extreme ultraviolet (EUV) lithography machines due to export controls imposed by the United States and its allies, Chinese manufacturers are making full use of the capacity of deep ultraviolet (DUV) equipment through multiple-patterning techniques. Although this method increases production costs and complexity, it could not prevent production from coming to a halt.
The global lead time for the supply of chipmaking equipment reaching up to 24 months had benefited domestic equipment companies in the past and had doubled the revenues of Chinese manufacturers operating in layering and etching. However, this technological bottleneck in lithography limits the possibility of meeting 100% of demand through domestic means under China’s 2035 target.