China’s domestic semiconductor industry could ship around 5 million chips in 2026 as local companies increase production in response to US export restrictions and government pressure to reduce reliance on foreign hardware.
The estimate suggests shipments may rise from roughly 4 million units in 2025. Growth is expected to continue over the next two to three years, with the sector potentially expanding at a compound annual rate of about 30 percent.
Chinese chipmakers are trying to meet rising demand from local AI companies, cloud providers, and data centres. Access to NVIDIA’s most advanced AI accelerators remains restricted, while Chinese authorities have also discouraged some companies from buying lower performance NVIDIA products designed specifically for the local market.
This policy is intended to support domestic suppliers, although China’s manufacturers still face major limits in production capacity, software support, and access to advanced chipmaking equipment.
Local foundries are expected to take a larger share of production
Most domestic chip production is handled by major Chinese foundries, including SMIC and Shanghai Hua Hong.
Their combined share of the local market could rise from around 40 percent to more than 50 percent as demand shifts toward Chinese designed and manufactured hardware.
| Domestic chip market estimate | Reported figure |
|---|---|
| Shipments in 2025 | Around 4 million units |
| Expected shipments in 2026 | Around 5 million units |
| Estimated annual growth rate | About 30 percent |
| Current domestic manufacturing share | Around 40 percent |
| Expected domestic share | More than 50 percent |
The increase would show meaningful progress, but shipment volume alone does not reveal the performance level of the chips being produced.
China can manufacture many processors for networking, consumer electronics, industrial systems, and less demanding AI workloads. Producing large quantities of advanced AI accelerators remains more difficult because those chips require leading edge manufacturing, high bandwidth memory, advanced packaging, and mature software tools.
AI sanctions are accelerating local development
US restrictions have blocked Chinese companies from purchasing some of the most powerful AI GPUs available on the global market.
NVIDIA has responded by designing products that comply with export rules, but Chinese government policy has increasingly encouraged local companies to adopt domestic alternatives instead.
This creates a protected market for companies such as Huawei and Cambricon. Both are expected to account for a large share of future domestic AI chip growth.
One forecast suggests Chinese AI chip shipments could rise from around 1 million units in 2025 to 5 million units by 2028. That projection is narrower than the estimate for all domestic chips in 2026, but it points to the same trend.
| Forecast category | Estimate |
|---|---|
| Domestic AI chips in 2025 | Around 1 million units |
| Domestic AI chips in 2028 | Around 5 million units |
| Main expected suppliers | Huawei and Cambricon |
| Broader domestic chip shipments in 2026 | Around 5 million units |
These estimates may refer to different chip categories, so they should not be treated as directly comparable. One covers the broader domestic market, while the other focuses more specifically on AI accelerators.
Local AI models are becoming a test for Chinese hardware
Chinese AI companies are beginning to present domestic chip adoption as a sign of technological independence.
Moonshot AI has claimed that its Kimi K3 model was developed entirely using locally produced chips. Such claims are important because training large AI models requires significant compute resources, reliable software, and stable access to hardware.
However, the supplied information does not identify the exact chips used, their quantity, or how their performance compares with NVIDIA systems.
Domestic training success would still represent progress even if the hardware is slower. Chinese developers can improve efficiency through software optimisation, model design, networking, and workload scheduling.
The larger challenge is scaling those systems while maintaining acceptable power use, reliability, and cost.
Manufacturing equipment remains a major constraint
China’s semiconductor companies are restricted from buying some advanced lithography tools and other manufacturing equipment.
This makes it difficult to produce the latest chips at high volume. Local foundries can use older deep ultraviolet systems with multi patterning, but that approach increases the number of production steps and can reduce yields.
Lower yields make each working chip more expensive. They also limit how quickly manufacturers can expand output.
China is investing heavily in domestic semiconductor equipment, materials, design software, and packaging. These efforts may reduce dependence on foreign suppliers over time, but replacing the complete manufacturing ecosystem will take years.
Cambricon could benefit strongly from domestic demand
Cambricon is expected to become one of the main beneficiaries of China’s move toward local AI accelerators.
Earlier estimates suggested the company could ship around 2.3 million AI chips in 2030. Demand increased after export restrictions pushed more Chinese developers toward domestic hardware.
The company has also reportedly depended heavily on a small number of major customers, with ByteDance accounting for a large share of revenue.
That concentration creates both opportunity and risk. A large customer can support rapid growth, but losing one contract could have a major financial impact.
Huawei is likely to remain another central supplier due to its processor design experience, software ecosystem, and relationships with Chinese cloud and telecommunications companies.
Shipment growth does not mean China has closed the technology gap
Reaching 5 million domestic chip shipments would demonstrate stronger production and customer adoption, but it would not mean Chinese processors have matched the most advanced international products.
The market still faces several limitations, including restricted access to EUV lithography, limited advanced packaging capacity, software compatibility challenges, and shortages of high bandwidth memory.
Chinese companies may compensate by using larger clusters, improving software efficiency, or designing specialised chips for narrower workloads.
These strategies can support useful systems even when individual chips are less powerful. However, they may increase energy consumption, hardware requirements, and operating costs.
China’s domestic semiconductor industry is clearly expanding, helped by government support, sanctions, and growing local demand. The expected rise to 5 million shipments in 2026 would mark another step toward greater self reliance, although manufacturing capability and advanced AI performance will remain the more important measures of long term competitiveness.
Discussion (0)
Be the first to comment.