China could slash advanced chip supply gap to 34% by 2035, Goldman Sachs claims

China could reduce its advanced-chip supply deficit over the next decade as domestic production expands, but lithography is a major obstacle to semiconductor self-sufficiency, according to a Goldman Sachs analysis reported by a Chinese media outlet. The domestic supply shortfall for wafers manufactured using advanced processes of 7 nanometres (nm) and below is projected to fall from 92% in 2025 to 34% by 2035, according to the investment bank. Goldman expects China’s advanced-node wafer supply to reach 410,000 wafers per month by 2035, compared with monthly demand of 619,000 wafers. Domestic advanced-wafer supply is projected to grow at a compound annual rate of 46% between 2025 and 2035, while demand is expected to increase by 17 percent, as per the Chinese media report. SMIC expansion could drive advanced chip production Much of the projected increase in supply is expected to come from Semiconductor Manufacturing International Corp (SMIC), China’s largest contract chipmaker, as it expands production capacity and improves yields. Goldman’s model assumes SMIC will add between 30,000 and 50,000 advanced-node wafers in monthly capacity each year from 2026 through 2031. It then assumes the company will add another 20,000 wafers per month annually through 2035. Production yields are projected to increase from 23% in 2026 to 50% in 2030 before reaching 75% in 2035. For comparison, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest foundry, began mass-producing 7nm chips in 2018 and can achieve yields exceeding 90%, depending on factors including chip design and die size. China accelerated its domestic chipmaking efforts after Washington tightened restrictions on Huawei Technologies in 2020, cutting the company off from TSMC. Despite subsequent US-led restrictions on exports of advanced semiconductor manufacturing equipment, SMIC produced a 7nm chip for Huawei in 2023. China’s chip self-sufficiency rate reached roughly 70% by production volume in June, compared with 38% in January 2010, according to Goldman. However, the report noted that the gap remains substantially wider when measured by value. Semiconductor investment expected to climb China’s semiconductor capital expenditure is expected to continue growing at double-digit annual rates through the end of the decade, reaching $82 billion in 2030, according to Goldman. That projection is 79% higher than the bank’s estimate from a year earlier. “We remain positive on growing semis capex ahead,” Goldman analysts wrote, citing increasing artificial intelligence demand, development of China’s domestic semiconductor ecosystem and a move toward more advanced chips, packaging and memory products. Goldman expects China’s wafer fabrication equipment market to reach $53 billion in 2027. Domestic suppliers are projected to capture 38% of the market by value in 2028, compared with 26% last year. Chinese manufacturers have expanded from areas including etching and deposition into ion implantation, inspection and metrology, according to Goldman. Lithography, however, is still a significant gap. China continues to rely on Dutch manufacturer ASML for nearly all of its cutting-edge deep ultraviolet (DUV) lithography machines, while some DUV systems encounter US export restrictions. China is also blocked from accessing ASML’s most advanced extreme ultraviolet (EUV) machines. Shanghai Micro Electronics Equipment Group, the state-owned company developing domestic advanced lithography systems, remains behind its international competitors, according to the report. Get the latest in engineering, tech, space & science - delivered daily to your inbox.Originally from LA, Maria Mocerino has been published in Business Insider, The Irish Examiner, The Rogue Mag, Chacruna Institute for Psychedelic Plant Medicines, and now Interesting Engineering.