The Chinese government has launched a major initiative, backed by $100 billion to $150 billion in public and private funds, to make China a global leader in the semiconductor industry. The ultimate goal is to end the country’s dependence on foreign suppliers by achieving technological parity with the world’s leading firms in design, fabrication and packaging of all types of chips by 2030.
Given China’s over-reliance on foreign technology, development of the Chinese semiconductor industry has been made a strategic imperative – one that fits neatly into the government’s broader aim to move from labour-intensive manufacturing to higher added-value industries.
First announced in 2014, the plan has grown more ambitious. In 2015 the government added a further goal for China to produce 70% of the chips consumed by Chinese industry within 10 years. Last year China’s manufacturers consumed $145 billion in microchips, with only one-tenth derived from domestic output.
To close the trade gap, China will need to acquire as much foreign expertise as possible. Accordingly, state-owned firms and local governments have rushed to acquire, invest in and make deals with foreign microchip companies. Last month, for example, the province of Guizhou announced a joint venture with American chip designer Qualcomm.
The government is focusing on building up a small number of “national champions”, The Economist reports. SMIC is the designated manufacturer or “foundry” champion. HiSilicon, part of Huawei, is one of a few design champions. At the top is Tsinghua Unigroup, which has emerged as China’s answer to Intel.
Despite its huge financial investments, China faces several challenges: The global semiconductor industry has matured. Its incumbents are entrenched, growth has slowed, and semiconductor technology has become highly complex. To succeed, China will need to develop a culture of innovation by making more investments in R&D and recruiting talented engineers and scientists. It will also need to adopt a more global orientation in order to meet the demands of global markets.
Analysts at Morgan Stanley say China has a fair chance at excelling in certain parts of the industry; specifically product areas, such as televisions, mobile phones and computers, as well as memory chips. But if China succeeds at catching up technologically, it will need to avoid a repeat of what happened when it sought to dominate in solar panels: By flooding the market with overcapacity, it undermined the industry worldwide.