China is moving to dramatically expand its domestic semiconductor manufacturing capacity in a state-backed effort to meet surging artificial intelligence demand and reduce reliance on foreign technology, according to a report by Nikkei Asia.
The report says China’s leading chipmakers, supported by central and local governments, are racing to increase production of advanced semiconductors by as much as five times current levels within the next one to two years. The initiative is designed to supply a rapidly growing ecosystem of domestic AI developers as geopolitical tensions and export restrictions continue to limit access to Western technology.
At the center of the effort is Semiconductor Manufacturing International Corporation, which is spearheading attempts to manufacture chips at the 7-nanometer level and beyond, even while remaining on a U.S. trade blacklist. Without access to the most advanced extreme ultraviolet lithography machines, the company has relied on older equipment and process refinements to produce what industry insiders describe as “7-nm-like” chips, with work underway to reach performance comparable to 5-nanometer nodes.
Technology giant Huawei is playing a critical supporting role, providing technical expertise and anchoring demand through its Kirin mobile processors and Ascend AI chipsets, many of which are built using SMIC’s enhanced N+3 manufacturing process. These chips are intended to power China’s expanding AI computing infrastructure, including data centers and cloud platforms.
China’s second-largest foundry, Hua Hong Semiconductor, has also shifted from legacy chip production into advanced-node development under government pressure to boost national self-sufficiency. Additional Huawei-linked manufacturers in southern China are building pilot lines and research bases to accelerate development, while previously blacklisted firms are being repurposed to test domestic chipmaking equipment and materials.
The country aims to raise output of advanced chips to roughly 100,000 wafers annually in the near term from fewer than 20,000 today, with longer-term ambitions to add another 500,000 wafers of capacity by 2030. Analysts caution that such goals face major obstacles because foreign-made tools still significantly outperform China’s domestic alternatives.
Globally, the most advanced chips currently in mass production are at the 3-nanometer level, led by companies such as TSMC, with 2-nm technology beginning to enter production. Industry leaders including Samsung Electronics remain far ahead in both scale and technical capability, highlighting the gap China is attempting to close.
Despite those challenges, Beijing is directing resources and coordinating supply chains to ensure domestic AI developers can access locally produced chips. Companies such as Cambricon, Moore Threads, and Hygon are increasingly shifting orders away from overseas foundries as restrictions make partnerships with foreign manufacturers less viable.
China’s push is also aimed at challenging the dominance of U.S. AI chip leader Nvidia, whose processors still hold the largest share of China’s AI computing market. Domestic alternatives are gaining traction as government procurement policies favor homegrown technologies under national innovation programs.
Industry observers say the campaign reflects a broader strategic shift: instead of attempting to match global leaders immediately, China is focusing on scaling “good-enough” advanced chips and strengthening related areas such as packaging, materials, and equipment. Even so, analysts note that constrained access to cutting-edge lithography systems remains the single biggest bottleneck.
While China’s semiconductor expansion is unlikely to overtake global leaders in the short term, it is already reshaping supply chains and creating parallel production ecosystems, signaling that the technology rivalry between Beijing and Washington is entering a deeper, more industrial phase.
