The global rush to build artificial intelligence systems is pushing China’s computer chip industry into massive overdrive. Tech companies around the world desperately need more hardware to run their advanced AI programs. To meet this crushing demand, Chinese chipmakers are spending record amounts to expand their factories and increase production capacity. Industry executives recently gathered in Shanghai for Semicon China 2026, one of the world’s largest annual semiconductor events, to discuss how they plan to handle this massive boom.
The explosion in hardware demand surprised many longtime experts in the business. Jerry Zhang, a sales leader at the Swiss component company VAT, told reporters at the Shanghai event that the industry is growing much faster than anyone predicted for this year. As companies rush to build more hardware, China plans to dominate the market for older, everyday chips completely. Lily Feng, the president of SEMI China, estimates that by 2028, China will produce 42 percent of the world’s mature computer chips, up from 37 percent in 2026. Builders use these specific 22-nanometer to 40-nanometer chips to run standard smartphones, electric cars, and basic home electronics.
Artificial intelligence does more than just increase overall sales; it fundamentally changes how companies build hardware. AI programs need massive amounts of computing power to learn new things and answer user questions. Because of this heavy workload, hardware engineers must design much more complex computer chips. Terry Feng, a regional director at the American chip-testing company Teradyne, explained that these highly complex designs require much stricter testing and packaging standards. Manufacturers must ensure every single tiny processor works perfectly before they ship it off to a server farm.
Inside these giant data centers, individual chips must communicate at lightning speed to process information. To make this happen, system builders use special physical parts called optical interconnects. China already stands out as a major global supplier for these critical connecting pieces. Zhou Limin, who works for an equipment maker called Mycronic, said his team cannot even keep up with the incoming requests. Customers want these high-precision assembly tools so badly that the company has already filled its order books into the next calendar year.
This frantic worldwide rush to build AI systems is currently stretching the global supply chain to its absolute limit. Chip factories around the world are struggling to secure sufficient raw materials and high-end components to keep their assembly lines running. However, industry analysts and business leaders believe China has a unique advantage during this chaotic time. Because the country already has a massive, highly integrated manufacturing sector, Chinese companies can adapt to and respond to sudden supply shortages much faster than factories in other countries.
Local Chinese material suppliers feel incredibly confident about the future of their business. Bai Yu, a vice president at Suzhou Origins Materials Technology, said his team expects massive expansion, particularly in the memory chip market. His company supplies crucial raw materials directly to some of China’s biggest chipmakers, including Semiconductor Manufacturing International Corporation, ChangXin Memory Technologies, and Yangtze Memory Technologies. To handle the incoming rush of heavy orders, Bai’s company will break ground on a brand new, large-scale production facility starting next month.
Despite China’s massive domestic growth and expanding factories, foreign companies still play a crucial role in the daily business. Chinese factories still need outside help to build the most advanced and expensive chips on the market. Cameron Johnson, a senior partner at Tidal Wave Solutions, pointed out that foreign suppliers hold a clear advantage in highly specialized manufacturing areas. These outside companies possess decades of unique technical expertise and understand the core materials perfectly. Johnson added that foreign tech companies also provide much better technical support and customer service after the sale, which remains an area where local Chinese competitors are still trying to catch up.
