China's AI Chip Shortage Widens, Demand Expected to Exceed 5 Million Units This Year
nashnova research
China's domestic AI chip supply is on track for roughly 3.5 million units this year, but total demand already exceeds 5 million — a gap of at least 1.5 million chips. This means → even after doubling capacity, China's AI buildout remains bottlenecked by chip supply.
How big is the supply-demand gap?
Domestic AI chip supply is projected at 3.5 million units this year, of which roughly 1 million are fabricated offshore.
Total demand is estimated at well over 5 million units, leaving a shortfall of at least 1.5 million.
This means → homegrown chips cover only about 70% of demand. The rest must come from workarounds — or goes unfilled.
Where is the money going, and who is scaling up?
Alibaba, ByteDance, and Tencent are expected to spend a combined ¥700 billion+ (≈$104 billion) in capex this year — more than double last year.
Huawei, Alibaba, Baidu, and Cambricon are leading the domestic chip capacity push.
In plain terms = the money is pouring in and output is rising, but demand is rising faster — spending can't keep pace with the chip shortage.
Will next year be any better?
Industry insiders expect domestic chip output to keep growing, but demand could double again, topping 10 million units.
This means → the gap will not narrow — it will widen further.
This reflects a structural problem: China's AI demand is growing persistently faster than its chip self-sufficiency effort can deliver.
How are companies filling the gap? Enter Nvidia's "compliant" chips.
To bridge the shortfall, Chinese tech firms are buying Nvidia gaming and workstation GPUs that comply with U.S. export controls, repurposing them for some AI workloads.
Chinese companies have purchased over 1 million such Nvidia chips this year.
In plain terms = they can't get the top-tier AI chips, so they make do with consumer-grade hardware — it handles some AI tasks, but at a cost in performance and efficiency.
What does this mean for China's AI strategy?
The supply-demand imbalance poses a material challenge for Chinese tech companies trying to catch their U.S. rivals.
Beijing's strategic goal of AI self-reliance faces the same chip bottleneck.
Whether the gap narrows meaningfully next year will be a critical test of China's AI chip localization strategy.
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