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China’s Plans For Ruling Chip Production

The latest statistics from IHS Technology on Chinese production of semiconductors is one real way to gauge how much of an effort China will have to make to build a globally competitive semiconductor industry — a goal that China says it wants to achieve by 2030. To help us understand China's challenges, IHS estimates that, taken together, China, Hong Kong, and Taiwan posted a year-over-year increase in semiconductor production revenue from $24.1 billion in 2012 to $27.5 billion in 2013.

However, the bulk of semiconductor production in Greater China occurred in Taiwan, where chip production was $18.4 billion in 2012 and $20.6 billion in 2013. By contrast, chip production in China/Hong Kong stood at $5.7 billion in 2012 and increased to $6.9 billion in 2013, or 2.2% of the world market, which in 2013 was $318.2 billion. The figures only take into account the value of shipments without any of the added costs under “consumption.” 

“You might think of this as just a different measurement of value captured earlier in the chain — before the semiconductors even get to the OEMs,” says Myson Robles-Bruce, principal analyst with IHS Technology, who covers the Semiconductor Value Chain.

Barriers to China's chip development
To turn this trend around the Chinese government recently published a document entitled: “Outline of the State to Promote the Development of the Integrated Circuit Industry,” which provides a blueprint for how China hopes to ramp up its integrated circuit (IC) sector in the years ahead. The document also highlights the challenges that China faces in its efforts to jump-start its semiconductor industry, which Chinese officials believe is critical to the country's high-tech development.

“China's IC industry is still very weak, far from supporting economic and social development as well as national information security, national defense and security-building needs,” the report said.

(Source: The Guardian)

(Source: The Guardian)

Declaring that semiconductor production is essential to the foundation of the information technology industry's rapid development, the document described the importance of an IC sector as “the measure of a country's comprehensive national industrial competitiveness and an important symbol.”

Compiled by China's Ministry of Industry and Information Technology, as well as the National Development and Reform Commission, the Ministry of Science, and the Ministry of Finance, the document also suggests that China is missing opportunities to produce chips for mobile phones, TV sets, and industrial equipment — to name a few areas where the IC sector could reap billions of dollars for the Chinese economy. No country knows this better than China, which is a large consumer of ICs used in high-tech manufacturing.

For 2013 IHS estimates show that Greater China had $150.3 billion in semiconductor consumption, which includes China/Hong Kong at $132.5 billion and Taiwan at $17.8 billion. This is an 11.7% increase over 2012 when consumption stood at $134.5 billion. The total for worldwide consumption is $335.4 billion. Greater China's share of the worldwide semiconductor consumption market is nearly 45%.

While the Chinese government is well aware of the benefits of developing an IC sector, it is equally aware of the barriers to its development. This includes the high cost of domestic financing, a long period before investors realize a return on investment, an unwillingness to invest, and a lack of talent to build the industry.

If the plans outlined for the coming years come to fruition, we can expect to see a vigorous push by the government to establish a climate where investors will be encouraged to fund the industry.

Next steps
Among the steps the Chinese government intends to take are:

  • The establishment of the National Integrated Circuit Industry Development Leading Group, which will coordinate activities, strengthen top-level design, and marshal resources to solve major problems.
  • Establish a national industrial investment fund that will encourage large enterprises, financial institutions, and social capital to focus on the development of integrated circuits.
  • Increase financial support by developing innovative credit products and financial services that support investments in semiconductor development.
  • Promote the establishment and implementation of tax support policies.
  • Strengthen the safety and reliability of hardware and software applications. Promote the use of advanced technology, safe and reliable integrated circuits, basic software, and machine systems.
  • Strengthen innovation capacity-building by encouraging the establishment of integrated business technology research institutions that will support the development of industry alliances and strengthen intellectual property.

Obviously, building a semiconductor production sector will demand an enormous amount of time, effort, financial investment, and confidence in China's technology capabilities. If China is unable to meet its semiconductor development goals, the country will open itself up to criticism that it lacks the ability to generate enough confidence to become internationally competitive in a key area of technological development.

Now that we know that China believes that building a chip production sector is tantamount to a national symbol of pride and accomplishment we can conclude that China believes the stakes are high and failure is not an option.

13 comments on “China’s Plans For Ruling Chip Production

  1. Daniel
    August 6, 2014

    “”China's IC industry is still very weak, far from supporting economic and social development as well as national information security, national defense and security-building needs,” the report said”

    Nicole, if Chinese IC industry is weak, then how they can achieve this goal by 2030?

  2. The Source
    August 6, 2014

    Hi Jacob,

    There is very little semiconductor production in China and the country wants to change that. China has set a target date, 2030, which is when it hopes to have a globally competitive semiconductor production sector. It has published a plan that tells us how they intend to achieve their chip production goals.  It's obvious that this will take a lot of work, investment and dedication.  Remember that 30 years ago China was not the technology manufacturing powerhouse it is today. We'll see how their IC production plans unfold.   

    By the way, Jacob, thanks for reading and responding to this article.

  3. Daniel
    August 7, 2014

    “There is very little semiconductor production in China and the country wants to change that. China has set a target date, 2030, which is when it hopes to have a globally competitive semiconductor production sector.”

    Nicole, my question is within 15 years can they set up fab production units for making this large production? As of now their production is at minimal level and a transition from minimal level to word leader may be quiet difficult with this short period; I feel.

  4. Daniel
    August 7, 2014

    “It has published a plan that tells us how they intend to achieve their chip production goals.  It's obvious that this will take a lot of work, investment and dedication.  Remember that 30 years ago China was not the technology manufacturing powerhouse it is today. We'll see how their IC production plans unfold.”

    Nicole, wait and see. One more thing in many times in terms of technology the other neighboring countries efforts (Taiwan, Honk Kong, Thailand etc) are accounting on China.

  5. SP
    August 7, 2014

    THere is no surprise that Chinese Government is putting down strict policies and environment for chip production. There would be no opposition and they can very well drive the country towards it. THey have the infrastructure and population and of course they are economically very strong. Nothing can stop them.

  6. Daniel
    August 8, 2014

    “THere is no surprise that Chinese Government is putting down strict policies and environment for chip production. There would be no opposition and they can very well drive the country towards it. THey have the infrastructure and population and of course they are economically very strong. Nothing can stop them.”

    SP, there are different factors when coming to fab production. One of their neighbors India has all these factors, but still they are lagging in same domain. But small countries like Japan, Taiwan, Thailand etc are doing well in chip and fab productions.

  7. Daniel
    August 8, 2014

    “Doesn't China have an advantage in terms of rare earths used to make some semiconductors?”

    Rich, most of the Asian countries like China, India etc have a rich treasure of rare earth minerals. They are using it for making titanium, sponge iron etc for industrial purposes.

  8. The Source
    August 8, 2014

    SP,

    I'll simply say that I think China has known for some time that building an IC industry is a worthwhile endeavor, but obviously there have been problems with developing this sector.  It's not as easy as just saying that they have the infrastructure and are economically strong.  These factors have been in place for a while. As the Chinese government's report notes, there is a lack of talent in place to drive this industry, funding initiatives to spur IC sector growth has been lacking and a comprehensive national plan has not been in place.  This is not the easiest industry to develop and we will see how competitive China can be given intellectual property issues and other factors that could negatively impact China's plans.

    Thanks for reading and responding to this article.

  9. Daniel
    August 11, 2014

    “Doesn't China have the largest proven reserves, or developed reserves, of rare earths?”

    Rich, they had.

  10. Daniel
    August 11, 2014

    “As the Chinese government's report notes, there is a lack of talent in place to drive this industry, funding initiatives to spur IC sector growth has been lacking and a comprehensive national plan has not been in place.  This is not the easiest industry to develop and we will see how competitive China can be given intellectual property issues and other factors that could negatively impact China's plans.”

    Nicole, you are right about China. But at the same time, I think China can support Taiwan and Honk Kong; where silicon industries are strong and growing well.

  11. Daniel
    August 12, 2014

    “Then who has the biggest reserves now?

    Rich, they had and still having

  12. Anand
    August 12, 2014

    China is the new IOT hub and the supply chain SHOULD be booming there, to support the IOT framework that wants to thrive there. Also, Chinese manufacturers know that their goods are famous worldwide.

  13. Anand
    August 12, 2014

    “I'll simply say that I think China has known for some time that building an IC industry is a worthwhile endeavor, but obviously there have been problems with developing this sector. It's not as easy as just saying that they have the infrastructure and are economically strong. These factors have been in place for a while. As the Chinese government's report notes, there is a lack of talent in place to drive this industry, funding initiatives to spur IC sector growth has been lacking and a comprehensive national plan has not been in place. This is not the easiest industry to develop and we will see how competitive China can be given intellectual property issues and other factors that could negatively impact China's plans.”

    The factors that could really create an issue with the new Electronic supply chains within China is an interior problem, and that problem is of counterfeit goods off the black market. Some big named Chinese manufacturers excercise enough caution while dealing with such fake parts and that is the only thing that poses a considerable amount of threat to the Chinese ESC.

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