China Could Cut Advanced Chip Supply Gap To 34% By 2035, Goldman Forecasts

China is on track to sharply reduce its dependence on foreign advanced semiconductors over the next decade, with the domestic supply-demand deficit for chips made at 7-nanometre and below process nodes projected to fall from 92% in 2025 to 34% by 2035, according to Goldman Sachs. The investment bank expects China’s advanced-node wafer supply to expand at a compound annual growth rate of 46% between 2025 and 2035, substantially faster than the projected 17% annual growth in domestic demand.

Goldman’s forecast points to a major expansion of China’s semiconductor manufacturing capabilities, led by Semiconductor Manufacturing International Corp (SMIC), the country’s largest contract chipmaker. However, the projection does not imply complete semiconductor self-sufficiency. Lithography equipment remains the critical bottleneck, particularly at the most advanced process nodes, while SMIC must also achieve substantial improvements in production yields to meet the projected output.

China’s Advanced Chip Gap Could Fall To 34%

Goldman Sachs estimates that China’s domestic supply of advanced-node wafers will reach 410,000 wafers per month by 2035, compared with projected domestic demand of 619,000 wafers per month.

That would leave a supply shortfall of about 209,000 wafers per month, equivalent to approximately 34% of demand. The improvement would nevertheless be substantial compared with 2025, when the deficit stood at 92%.

China Advanced Chip Supply And Demand

Metric	2025	2035 Forecast
Advanced-node definition	7nm and below	7nm and below
Supply-demand deficit	92%	34%
Advanced wafer supply	—	410,000/month
Advanced wafer demand	—	619,000/month
Supply CAGR	—	46%
Demand CAGR	—	17%
Remaining supply gap	Very high	About 209,000 wafers/month

The figures show that China’s progress is expected to come primarily from supply expansion rather than a collapse in domestic demand. AI development, data centers and high-performance computing are expected to keep demand for advanced chips growing rapidly.

SMIC Will Be Central To The Expansion

Goldman’s model places SMIC at the center of China’s advanced semiconductor capacity expansion.

The investment bank assumes SMIC will add between 30,000 and 50,000 advanced-node wafers of monthly capacity each year from 2026 through 2031. After that, the assumed pace slows to an additional 20,000 wafers per month annually through 2035.

This would represent a significant expansion of China’s ability to manufacture advanced chips domestically.

Goldman’s SMIC Capacity Assumptions

Period	Assumed Additional Monthly Capacity
2026-2031	30,000-50,000 wafers/year
2032-2035	20,000 wafers/year
Main beneficiary	SMIC
Process focus	7nm and below

The forecast is therefore dependent on both new fabrication capacity and the ability to produce usable chips efficiently once that capacity is installed.

Production Yields Are A Critical Variable

Capacity alone does not determine semiconductor output. Manufacturers must achieve high yields — the percentage of usable chips produced from processed wafers — for a fab to operate economically at scale.

Goldman assumes SMIC’s yields on advanced processes will improve significantly over the next decade.

The investment bank’s model projects yields rising from 23% in 2026 to 50% in 2030 and 75% by 2035. By comparison, Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chipmaker, can achieve yields above 90% depending on chip design and die size.

SMIC Yield Projection

2026        23%
   │
   │
2030        50%
   │
   │
2035        75%

TSMC benchmark:
Can exceed 90% depending on design and die size

The projected improvement is therefore one of the most important assumptions behind Goldman’s 2035 supply forecast.

If yields improve more slowly than expected, China’s effective supply could remain substantially below the 410,000 wafers per month projected for 2035.

AI Is Driving China’s Chip Demand

The expansion is taking place against a rapidly changing demand environment.

Artificial intelligence has increased demand for high-performance processors, memory, networking equipment and advanced manufacturing capacity. China is investing heavily in domestic AI infrastructure as U.S. export controls limit access to some of the world’s most advanced processors.

Goldman’s forecast assumes domestic demand for 7nm-and-below wafers will grow at 17% annually through 2035. Although that is considerably slower than the projected 46% supply growth, it still represents a substantial increase in absolute demand.

Key Drivers Of Advanced-Chip Demand

Demand Driver	Semiconductor Impact
Artificial intelligence	Higher demand for advanced processors
Data centers	Increased computing requirements
AI accelerators	Need for advanced manufacturing
High-performance computing	Greater wafer demand
Domestic AI development	Reduced tolerance for import dependence
Electronics	Continued semiconductor consumption

The resulting dynamic is unusual: China is simultaneously trying to expand semiconductor supply while its own technology sector is creating additional demand for advanced chips.

Lithography Remains China’s Biggest Bottleneck

Despite the projected improvement, Goldman Sachs does not expect China to achieve complete semiconductor independence by 2035.

The major constraint is lithography — the process used to print extremely small circuit patterns onto semiconductor wafers.

The most advanced lithography systems are produced by ASML, a Netherlands-based company. Extreme ultraviolet, or EUV, lithography is particularly important for efficient production at the most advanced nodes.

China remains unable to freely obtain the world’s most advanced EUV equipment because of export restrictions.

China’s Semiconductor Bottlenecks

Advanced Chip Expansion
        │
        ├── More Fab Capacity
        │        ↓
        │      SMIC
        │
        ├── Higher Production Yields
        │        ↓
        │      23% → 75%
        │
        └── Advanced Lithography
                 ↓
          Major Bottleneck
                 ↓
       Full Self-Sufficiency
             Remains Difficult

This means China can expand production significantly without eliminating its dependence on foreign semiconductor equipment and technology.

Why Equipment Matters As Much As Fabs

Building a semiconductor fab requires much more than physical manufacturing space.

Advanced fabs rely on highly specialized equipment for lithography, etching, deposition, inspection and metrology. Restrictions on any critical part of that equipment ecosystem can limit the ability of a chipmaker to reproduce the manufacturing efficiency achieved by leading global foundries.

For China, lithography is particularly important because the country is attempting to manufacture increasingly advanced chips without access to the same tools available to TSMC, Samsung and other leading manufacturers.

Semiconductor Manufacturing Chain

Stage	Importance
Chip design	Defines architecture and performance
Lithography	Prints circuit patterns
Deposition	Adds material layers
Etching	Removes selected material
Inspection	Detects defects
Packaging	Connects and protects chips
Yield optimization	Determines usable output

China’s progress in several of these areas can reduce its dependence on foreign suppliers, but the lithography gap remains a major obstacle to full self-reliance.

China Could Still Depend On Overseas Advanced Chips

Even under Goldman’s optimistic expansion scenario, China’s domestic supply would reach only 410,000 wafers per month against 619,000 wafers of demand in 2035.

That leaves approximately one-third of demand uncovered by domestic production.

2035 Advanced-Wafer Outlook

Projected Monthly Demand
619,000 wafers
██████████████████████████████

Projected Domestic Supply
410,000 wafers
███████████████████

Remaining Gap
209,000 wafers
██████████

The projected 34% deficit therefore represents major progress rather than complete independence.

For policymakers in Beijing, the implication is that domestic manufacturing could become substantially more resilient while foreign technology remains necessary for part of the advanced-chip supply chain.

The Shift Could Change The Global Semiconductor Map

China’s rapid expansion could have consequences well beyond its borders.

A larger domestic advanced-chip industry would reduce China’s dependence on overseas foundries and could also strengthen Chinese technology companies’ ability to develop AI systems, smartphones, networking equipment and other advanced products.

It could also intensify competition with Taiwan, South Korea, the United States and other semiconductor-producing economies.

Potential Global Effects

Development	Potential Impact
Higher Chinese chip output	Lower dependence on imports
Improved SMIC yields	Greater manufacturing efficiency
More domestic AI chips	Reduced exposure to export controls
Continued equipment restrictions	Limits ultimate self-sufficiency
More Chinese capacity	Greater global semiconductor competition
Rising AI demand	Sustains pressure on advanced-node supply

The semiconductor industry could therefore become increasingly divided between ecosystems built around Chinese technology and those dependent on U.S., Taiwanese, South Korean, Japanese and European suppliers.

TSMC Still Maintains A Major Manufacturing Advantage

Goldman’s assumptions also highlight the gap China needs to close with the world’s leading foundries.

TSMC began mass production of 7nm chips in 2018 and can achieve yields above 90% depending on the design and die size. Goldman’s model assumes SMIC reaches a 75% yield by 2035.

That does not mean SMIC will necessarily remain technologically behind in every area. It does, however, demonstrate the manufacturing efficiency challenge facing China’s semiconductor industry.

SMIC Vs TSMC: Yield Context

Metric	SMIC Goldman Assumption	TSMC Reference
Advanced process	7nm and below	7nm and below
2026 SMIC yield	23%	—
2030 SMIC yield	50%	—
2035 SMIC yield	75%	—
TSMC yield	—	Can exceed 90%
Main challenge	Improving yield	Maintaining leading-edge efficiency

Higher yields can substantially reduce the effective cost of manufacturing advanced chips because fewer wafers are lost to defective dies.

Export Controls Are Reshaping China’s Semiconductor Strategy

The U.S.-led restrictions on advanced semiconductor technology have become a major driver of China’s push for self-reliance.

Instead of relying entirely on foreign suppliers, Chinese companies and policymakers are investing in domestic fabs, semiconductor equipment, chip design and manufacturing technologies.

The result is a feedback loop in which restrictions intended to limit China’s access to cutting-edge technology also increase incentives for domestic development.

Export Restrictions
        ↓
Reduced Access To Advanced Technology
        ↓
Greater Domestic Investment
        ↓
More Fab Capacity
        ↓
Improved Local Semiconductor Ecosystem
        ↓
Lower Import Dependence

The process is unlikely to eliminate China’s dependence on international technology quickly, but Goldman’s forecast suggests it could materially reduce the size of the gap over the next decade.

The Economic Stakes Are Increasing

Semiconductors are now strategically important far beyond consumer electronics.

Advanced chips are essential to artificial intelligence, telecommunications, autonomous systems, cloud computing, defense applications and high-performance computing.

For China, increasing domestic supply therefore has both economic and strategic importance.

A smaller advanced-chip deficit could give Chinese companies greater certainty when planning AI infrastructure and other technology investments. It could also reduce the risk that foreign restrictions suddenly constrain access to critical processors.

The Bigger Picture

Goldman Sachs’ forecast suggests China’s semiconductor strategy is beginning to produce a significant change in the country’s advanced-chip supply outlook. A projected 46% annual growth rate in 7nm-and-below wafer supply would far exceed the 17% growth in domestic demand, reducing the supply deficit from 92% in 2025 to 34% by 2035.

But the numbers also show why China’s semiconductor ambitions should not be equated with complete self-sufficiency. Even after a decade of rapid capacity expansion, domestic production would cover only about two-thirds of projected advanced-wafer demand. The remaining gap, combined with continued lithography constraints and the need for higher manufacturing yields, means foreign technology will remain important.

Looking Ahead

The key variables over the next decade will be SMIC’s ability to expand capacity and improve yields while China works to close gaps in semiconductor manufacturing equipment. Goldman’s model assumes yields increase from 23% in 2026 to 75% by 2035 and that substantial new monthly wafer capacity is added every year. If those assumptions are achieved, China’s advanced-chip supply could expand dramatically.

The broader semiconductor race, however, will continue to be shaped by lithography access, export controls, AI demand and technological innovation. China’s projected 34% deficit in 2035 would represent a major reduction in import dependence, but not full independence. The outcome will therefore depend not only on how quickly Chinese fabs expand, but also on whether domestic equipment makers can eventually narrow the remaining technology gap