China’s advanced chip supply to surge by 2035 despite equipment bottlenecks, Goldman says
Goldman Sachs predicts China's advanced chip supply will surge by 2035, significantly narrowing the domestic supply-demand gap, driven by SMIC's expansion and improved yields.
Intelligence analysis by Gemini 2.5 Flash
A new report from Goldman Sachs forecasts a dramatic increase in China's domestic supply of advanced chips (7-nanometre and below) by 2035, largely propelled by aggressive capacity expansion at Semiconductor Manufacturing International Corp (SMIC) and rising production yields. While this growth will substantially reduce China's reliance on foreign chips, the investment bank notes that…
Imagine China wants to make its own super-fast computer brains, called chips, for things like smart robots and AI. A big bank says China will get much better at making these special chips by 2035, making lots more of them. This is because a big Chinese chip factory, SMIC, is building more machines and getting better at making chips without mistakes. But, they still have trouble getting the most advanced machines that draw tiny patterns on the chips, which means they can't quite make all the chips they need by themselves yet.
Analysis
The latest analysis from Goldman Sachs offers a detailed projection of China's trajectory towards greater self-reliance in advanced semiconductor manufacturing. The report highlights a significant anticipated surge in domestic production of chips utilizing 7-nanometre and below processes, which are crucial for cutting-edge AI and high-performance computing. This forecast underscores China's determined efforts to mitigate its vulnerability to external supply chain disruptions and technological restrictions, particularly from the United States.
2035 Projections
Goldman Sachs projects that China's supply of advanced wafers will grow at a compound annual rate of 46 per cent between 2025 and 2035. This rapid expansion is expected to far outpace the 17 per cent growth in domestic demand, leading to a substantial reduction in the supply-demand deficit. By 2035, the gap is predicted to narrow to 34 per cent, a significant improvement from 92 per cent in 2025, with advanced-node wafer supply reaching 410,000 wafers per month against a demand of 619,000 wafers.
SMIC's Role
The primary driver behind this projected growth is Semiconductor Manufacturing International Corp (SMIC), China's largest contract chipmaker. Goldman's model assumes SMIC will undertake aggressive capacity expansion, adding between 30,000 and 50,000 advanced-node wafers per month annually from 2026 to 2031, followed by an additional 20,000 wafers per month annually through 2035. Concurrently, the report anticipates a substantial improvement in SMIC's production yields, rising from 23 per cent in 2026 to 50 per cent by 2030 and eventually reaching 75 per cent by 2035.
Lithography Bottleneck
Despite these optimistic projections for capacity and yield improvements, the report identifies lithography equipment as a critical weak link that will likely keep full semiconductor independence out of China's reach. Advanced lithography tools, essential for manufacturing the most sophisticated chips, remain largely controlled by non-Chinese companies, particularly ASML. While SMIC's projected yields of 75 per cent by 2035 represent significant progress, they still fall short of the over 90 per cent yields achieved by industry leader Taiwan Semiconductor Manufacturing Company (TSMC) for 7nm chips, highlighting the persistent technological gap in this crucial area.
Key points
- China's advanced chip supply (7nm and below) is projected to grow at a 46% compound annual rate from 2025 to 2035.
- The domestic supply-demand gap for advanced wafers is expected to narrow from 92% in 2025 to 34% by 2035.
- Semiconductor Manufacturing International Corp (SMIC) is anticipated to drive this growth through aggressive capacity expansion.
- SMIC's production yields are forecast to improve significantly, from 23% in 2026 to 75% by 2035.
- Advanced lithography equipment remains a critical weak link, hindering China's full semiconductor independence.
China could significantly reduce its reliance on foreign advanced chip imports, bolstering its technological sovereignty and potentially fostering a more robust domestic AI ecosystem. This could lead to greater innovation and economic resilience within China's tech sector, allowing it to pursue its strategic goals with less external dependency.
Despite projected growth, the persistent bottleneck in advanced lithography equipment could prevent China from achieving full semiconductor independence, leaving it vulnerable to external supply chain disruptions and technological sanctions. This could potentially slow its AI development and overall technological advancement compared to global leaders.
