context: Integrated chips are becoming a focus in the potential US-China trade war. Reducing reliance on US firms like Qualcomm has been a top priority for Beijing.
Shares of domestic chipmakers have been soaring, reports Jiemian, pointing out
- local and central government support
- the National IC Industry Investment Fund (aka the ‘big fund’) has spent 61 percent of its funds in 2017 (note: and has announced a second fund-raising round for 2018)
- growing profits
- trade friction with the US
Reducing reliance on imports needs to speed up, argues Li Xinyan 李新颜 Founder H Fund managing director, citing international trade friction. Integrated circuits (IC) became China's largest import category in 2017, replacing crude oil, with a US$260 bn total value and a trade deficit of US$193 bn, according to China Semiconductor Industry Association.
Local governments are contributing with projects that diversify the industry, argues 21st Century Business Herald (note: some investors argue local enthusiasm is fuelling low-end overproduction). In March 2018 Huarong Semiconductor launched a US$10 bn project in Wuxi, and Tsinghua Group and Chongqing government set up a chip design firm with C¥100 bn. Major projects have also been announced in Shanghai, Chengdu and Nanjing in 2018.
Central government is supporting the industry through the big fund, but investments come with too many strings attached and tend to go to established firms, says Wei Shaojun 魏少军 Tsinghua University Microelectronics Institute director, noting the fund does not sufficiently support innovation.
40 percent of chips are to be domestically produced by 2020 and 70 percent by 2025, according to the Strategic Emerging Industries 5-year plan. Over the last decade Jiangyin RunMa's products replaced 60 percent of imports for some input materials, reducing costs for the industry by 30 percent, says Ge Shiyong 戈士勇 Jiangyin RunMa CEO. But it will take years to dismantle US dominance, says 21st Century Business Herald. Semiconductors started in the US, then production moved to Japan, South-Korea, Taiwan and finally mainland China, says Zhao Cheng 赵成 Caitong Communications Electronics analyst. Our clients will only buy products that have a US patent because that signifies top quality, says Mao Chenglie 毛成烈 Wuxi ETEK Microelectronics vice director.
According to SEMI, 26 out of the 62 fabs that will be built worldwide from 2017–20 will be in China. With projects in manufacturing and successes in testing, China's weakness is in design, says the report. The industry will lack 80,000 people by 2020, says professor Wei. Wuxi has no upper limit for support packages for top-level talent, says the report.