China chip industry booms as AI demand surges

The global competition to develop artificial intelligence systems has resulted in increased growth for China's semiconductor industry because AI markets require more chips and semiconductor production facilities and chip distribution networks. 

Industry executives report that production growth is surpassing their initial expectations because companies are increasing their output capacity to address the rising global demand.

At Semicon China 2026 in Shanghai, industry leaders said China’s share of global output for mature chips is set to rise significantly. According to SEMI, the country’s capacity for 22nm to 40nm chips could reach 42% by 2028, up from 37% in 2026. These chips are widely used in cars, smartphones, and consumer electronics.

Artificial intelligence is changing how chips are designed and manufactured. The industry requires companies to test products and package them and create high-speed connections.

According to Teradyne and other companies, artificial intelligence technology requires more computing resources, which leads to increased demand for high-performance semiconductor products. The growth of the optical interconnect market is helping China develop its position as a leader in this vital data centre technology.

Notably, the increase in demand is creating challenges for global supply chains which struggle to obtain both essential raw materials and high-end parts.

Chinese companies are establishing production plants and making investments to boost their manufacturing capacity. The companies that supply Semiconductor Manufacturing International Corporation and other major chipmakers are preparing to expand their operations throughout the world.

Foreign suppliers maintain their importance in specialised industry sectors despite the rapid growth of domestic operations. The technical skills of international companies together with their after-sales support remain superior to those of Chinese businesses which are expanding their domestic technical capabilities.