China is projected to narrow its advanced semiconductor supply gap by 2035 as domestic manufacturing expands, but critical lithography equipment remains a major barrier to full self-sufficiency, according to a new analysis
China's efforts to expand its domestic semiconductor manufacturing are expected to reduce the country's reliance on foreign advanced chips over the next decade, but persistent limitations in lithography technology continue to constrain full self-sufficiency. According to a recent analysis from Goldman Sachs, as reported by a Chinese media outlet, China's supply deficit for advanced-node wafers-specifically those produced at 7 nanometers (nm) and below-is projected to decrease from 92% in 2025 to 34% by 2035. This estimate is based on anticipated growth in domestic production capacity and improvements in manufacturing yields.
Goldman Sachs projects that by 2035, China's monthly supply of advanced-node wafers could reach 410,000 units, compared to an expected domestic demand of 619,000 wafers per month. The analysis suggests that domestic supply will grow at a compound annual rate of 46% between 2025 and 2035, while demand is forecast to increase by 17% annually. The majority of this supply growth is expected to come from Semiconductor Manufacturing International Corp (SMIC), China's largest contract chipmaker, which is expanding its production capacity and working to improve manufacturing yields.
SMIC's Role and Yield Challenges
Goldman Sachs' model assumes that SMIC will add between 30,000 and 50,000 advanced-node wafers in monthly capacity each year from 2026 through 2031, followed by an additional 20,000 wafers per month annually through 2035. Production yields-meaning the proportion of usable chips produced from each wafer-are projected to rise from 23% in 2026 to 50% in 2030, and to 75% by 2035. For context, Taiwan Semiconductor Manufacturing Company (TSMC), the global leader in foundry services, began mass-producing 7nm chips in 2018 and has achieved yields exceeding 90% for some designs. SMIC's progress is notable but remains behind the industry's most advanced standards.
China's push to develop its own chipmaking capabilities accelerated after the United States imposed export restrictions on Huawei Technologies in 2020, which cut the company off from TSMC's advanced manufacturing. Despite subsequent US-led controls on semiconductor equipment exports, SMIC succeeded in producing a 7nm chip for Huawei in 2023. According to Goldman Sachs, China's chip self-sufficiency rate by production volume reached approximately 70% in June 2026, up from 38% in January 2010. However, the gap remains much wider when measured by the value of chips produced, reflecting the higher market value of advanced nodes.
Investment and Equipment Bottlenecks
China's capital expenditure on semiconductor manufacturing is expected to continue growing at double-digit annual rates, reaching an estimated $82 billion by 2030. This figure is 79% higher than Goldman Sachs' previous estimate from a year earlier. The investment surge is driven by rising demand for artificial intelligence, the development of a domestic semiconductor ecosystem, and a shift toward more advanced chips, packaging, and memory products. The wafer fabrication equipment market in China is projected to reach $53 billion in 2027, with domestic suppliers expected to capture 38% of the market by value in 2028, up from 26% in 2025.
Chinese manufacturers have expanded their capabilities in areas such as etching, deposition, ion implantation, inspection, and metrology. However, lithography-the process of patterning circuits onto silicon wafers-remains a critical bottleneck. China continues to rely on Dutch supplier ASML for nearly all of its advanced deep ultraviolet (DUV) lithography machines, and some DUV systems are subject to US export restrictions. Access to ASML's most advanced extreme ultraviolet (EUV) lithography machines remains blocked. Shanghai Micro Electronics Equipment Group, a state-owned enterprise developing domestic lithography systems, has not yet matched the capabilities of leading international competitors.
Limits of Self-Sufficiency
While China's domestic chip production is expanding rapidly, the country's ability to achieve full self-sufficiency in advanced semiconductors is constrained by ongoing dependence on foreign lithography equipment and related technologies. The gap between domestic supply and demand for advanced-node chips is expected to narrow, but not close entirely, by 2035. The analysis underscores that progress in manufacturing yields and capacity expansion will be necessary but not sufficient without breakthroughs in domestic lithography technology. The continued reliance on imported equipment exposes China's semiconductor sector to ongoing geopolitical and regulatory risks.
China's experience highlights the complexity of semiconductor supply chains, where advances in one area-such as wafer fabrication-do not automatically translate into independence if critical equipment or materials remain out of reach. The country's investments in research, manufacturing, and equipment development are likely to continue, but the timeline for achieving parity with global leaders in lithography remains uncertain.
Understanding lithography is essential to grasping the challenges facing advanced semiconductor manufacturing. Lithography is the process by which intricate circuit patterns are transferred onto silicon wafers using light, enabling the production of ever-smaller and more powerful chips. The most advanced systems, such as extreme ultraviolet (EUV) lithography, require highly specialized optics, light sources, and materials, and are produced by only a handful of companies worldwide. Limitations in access to these systems can restrict a country's ability to manufacture leading-edge chips, regardless of progress in other areas of the semiconductor supply chain.
