From smartphones, computers, self-driving cars, and advanced medical equipment, integrated circuits (ICs) drive the technological revolution. While the US, Europe, and Japan spearheaded the IC market for years, China is quickly catching up and is becoming a strong player. Here are various strategies China is executing to become a leader in the global IC market.
- Government Investment
A study by the Center for Strategic and International Studies, a Washington-based think tank, revealed that China outpaces other developed and developing countries in granting subsidies to its domestic companies yearly. The Chinese government showers its companies with hundreds of billions of dollars, surpassing the efforts of other countries relative to its economy.
According to a recent report by Business Standard, China has planned to invest 1 trillion yuan ($143 billion) over five years to support its semiconductor industry, primarily through subsidies, grants, tax concessions, and below-market finance for companies purchasing domestic semiconductor equipment. The government aims to boost growth and development in the industry, stimulating the economy.
The plan comes in response to a U.S. CHIPS Act providing $52.7 billion in grants for semiconductor production and research in the country and $24 billion in tax credits for chip plants. China intends to intensify its backing of local chip companies with an attractive incentive package that supports the building, expansion, and modernization of domestic facilities for fabrication, assembly, packaging, and research and development.
Municipal governments in Beijing, Shenzhen, Hangzhou, and Guangzhou have unveiled various measures to back regional businesses and fuel economic growth, with Guangzhou’s municipal government recently announcing the establishment of two Fund of Funds (FoFs): the Guangzhou industrial investment FoF and the Guangzhou innovative investment FoF, totaling CNY 200 billion (US$29 billion).
Guangzhou intends to make this significant investment to finance endeavors in semiconductors, renewable energy, and other advanced manufacturing sectors. Other cities such as Xian and Shenzhen likewise strive to bolster their local chip industry through increased financial aid.
- Large Domestic Market
Data analytics and consulting company, GlobalData, predicts the semiconductor market will reach a staggering trillion-dollar valuation by 2030, with China expected to take a significant share of the value. China’s craving for chips has skyrocketed, thrusting the nation into a prime position in the international arena.
Research from GlobalData reveals China consumes up to 40% of the world’s chips but can only satisfy 12% of its needs. This ravenous appetite for semiconductors is due to its pioneering role in creating smartly connected ecosystems, like the Internet of Things (IoT). With the global count of connected devices predicted to reach 125 billion by 2030, China’s demand may intensify even further.
China has poured hefty investments into its semiconductor sector to keep up with the high demand, especially in the state-funded foundry sector led by Semiconductor Manufacturing International Corporation (SMIC). Taiwan Semiconductor Manufacturing Corporation (TSMC), the global leader in the semiconductor market, has redirected its attention to producing more advanced chips, thus providing a lucrative niche for Chinese foundries to tackle the older chip market.
Endeavors to bolster homegrown semiconductor prowess form a component of the Made in China 2025 policy of the Chinese Communist Party (CCP). The aim is to produce 70% of domestic needs domestically by 2025 and reach equal footing with the world’s cutting-edge technology across all facets of the industry by 2030.
- Skilled Workforce
China has launched ambitious initiatives, like the Thousand Talents Plan and the Young Thousand Talents program, to attract top-tier talent to its shores and bolster its prowess in strategic industries as part of its Made in China 2025 mission. Scores of engineers from Taiwanese, Japanese, and South Korean chipmakers have joined Chinese semiconductor businesses through China’s national talent recruitment programs.
However, the Thousand Talents Plan has faced increased scrutiny and criticism from the United States government and other countries over potential intellectual property theft and espionage. In contrast, the Young Thousand Talents program requires young scientist-talent to remain in China, providing generous financial support, research funding, and other incentives.
This Young Thousand Talents program reduces concerns about conflicts of interest and intellectual property compliance, as participants must be committed to full-time work in the country. Ultimately, it is a bid to amass a bevy of brilliant minds to bolster the nation’s growth.
China’s ambitious talent programs could provide a viable alternative to U.S. universities and institutions for science-minded international students, propelling China’s drive to be a powerhouse in the integrated circuit market.
- Strategic Partnerships
China is rising to the top as a leader in the global IC space through a range of strategic partnerships. These take various forms, from acquiring foreign semiconductor companies to creating joint-ventures companies with domestic and overseas companies and working with foreign universities and research centers.
China has made several strategic partnerships to expand its footprints in the semiconductor industry, such as the acquisition of Powertech Technology by Chinese tech giant Tsinghua Unigroup and SMIC’s joint venture with Qualcomm to fabricate chips for the Internet of Things (IoT) market. In 2020, SMIC declared intentions to build a wafer plant in Beijing to amplify semiconductor production and reduce costs.
The Sino-Singapore International Joint Research Institute (SSIJRI) showcases another prime instance of China’s strategic collaboration to propel research innovation in diverse areas, including advanced semiconductor materials, device structures, process technologies, and integrated circuits and systems.
The Chinese and Singaporean governments financially back the SSIJRI, established in 2017 by the China-Singapore Guangzhou Knowledge City (CSGKC) Administrative Committee, South China University of Technology (SCUT), Nanyang Technological University (NTU Singapore), and Sino-Singapore Guangzhou Knowledge City (SSGKC) Investment and Development Co., Ltd (GKC Co).
China is leveraging these strategic collaborations to bolster its access to cutting-edge IC technology and know-how, reducing reliance on foreign technology and taking the driver’s seat in the international semiconductor market.
- High-tech Infrastructure
China has poured resources into constructing semiconductor fabrication plants, wafer production lines, and chip testing centers, all as part of a drive to bolster its high-tech infrastructure. Under government initiatives like the National Integrated Circuit Industry Development Guidelines and Made in China 2025, the nation aims to build world-leading capacity in major sectors such as ICs.
In addition, China has created semiconductor industry hubs like the Shanghai Zhangjiang National Innovation Demonstration Zone and the Wuhan East Lake High-tech Development Zone to draw in semiconductor companies and spark collaboration between businesses, educational institutions, and research centers.
At the 2022 Yuelu Internet Summit, organized by the Hunan Cyberspace Affairs Commission; the Industry and Information Technology Department of Hunan Province, Hunan Xiangjiang New Area; and the China Federation of Internet Societies, 24 groundbreaking projects with a total value of 83.31 billion yuan were unveiled.
Other significant initiatives unveiled include a high-end chip packaging project by Changsha AnMuQuan, focused on building an advanced packaging and production expansion base for high-end chips, a project by Jinxin Electronics for the R&D and design of digital signal processing (DSP) chips and embedded solutions, and Techphant’s R&D project for a new infrastructure supporting the government’s IoT-aware city solutions.
- Innovative Research
The Chinese semiconductor industry has been known for its scale and low-cost manufacturing, but recent developments highlight its innovative thinking and technical advancements in domestic semiconductor technology. Yangtze Memory Technologies (YMTC), a memory chip manufacturer specializing in DRAM and non-volatile NAND memory technology, is a prime example of this development.
Despite prominent Korean and US chipmakers typically dominating the market, YMTC’s unique architecture, marketed as Xtacking, enables it to mass-produce a 144-layer vertical NAND design that can compete with the market leaders. SMIC, China’s largest semiconductor foundry, is also altering its manufacturing capability to become a cost-effective producer of 14 nm and 12 nm silicon processes due to US trade sanctions.
Moreover, 2021 has seen a sharp rise in the number of new Chinese semiconductor companies, with Chinese companies downstream from the industry, such as Baidu, Alibaba, Oppo, and Xiaomi, having all expressed a desire to produce their chipsets. This trend is also visible in other sectors, with companies such as Cree, TCL, Konka, and Midea unveiling similar ambitions.
The Chinese semiconductor industry is demonstrating its ambition and capability by making advancements in the development of superconductive materials, photonic computing, and graphene transistors and outsourcing semiconductor assembly, testing, and packaging. These developments suggest that China is ready to withstand hardships domestically and prove itself as a formidable rival in the international market.
- Support for Startups
China has taken numerous measures to promote the flourishing of its IC startup ecosystem. Most notably, the state-backed National IC Industry Investment Fund (Big Fund), endowed with ¥138 billion ($21 billion), has been established to support IC companies financially. Additionally, generous tax incentives, subsidies, and simplified procedures for registering and licensing IC businesses are in place to stimulate the development of the IC industry.
Startups in China enjoy access to various resources, ranging from talent pools to research and development facilities and manufacturing infrastructure. The Chinese government has set up IC industrial parks to nurture its IC startup ecosystem, providing them with shared resources and infrastructure. This initiative has resulted in a dynamic and inventive environment.
Additionally, China is taking clear steps to enhance the protection of intellectual property to incentivize the creation of quality inventions. These include reducing frivolous patents and bureaucracy, optimizing subsidies and evaluation systems, fostering industries focusing on patent applications, and increasing autonomy for universities and state-owned enterprises in intellectual property management.
China’s initiatives reflect its unwavering commitment to furthering the semiconductor industry within its borders and aiding Chinese startups to stimulate innovation and attract investment and talent, ultimately reflecting its strong desire to become a leader in the global semiconductor industry.
- Mergers and Acquisitions
China has employed mergers and acquisitions (M&A) to solidify its place in the global IC market. By merging with or acquiring companies with IC design and manufacturing expertise, locally and internationally, China has rapidly expanded its domestic IC industry and gained access to advanced technology and intellectual property.
Recently, a UK fabless semiconductor company, Flusso, which develops digital flow-sensing solutions, was jointly acquired for $28m by Shanghai Sierchi Enterprise Management Partnership, a Chinese investment group controlled by several unnamed private and state-owned investors.
Although the acquirers were not named to avoid affecting their upcoming IPO, the deal highlights China’s strategy to dominate the global IC market through mergers and acquisitions. The acquisition comes amid escalating Sino-British tensions, given the UK government’s increasing scrutiny of deals between UK and Chinese tech companies.
China’s M&A activity in the IC sector has raised concerns among foreign governments and industry analysts about its impact on global competition and national security. Several countries, including the US, UK, Australia, and France, have tightened regulations around foreign investment in their domestic IC industries in response to these concerns.
For instance, China’s access to the Extreme Ultraviolet Lithography (EUV) lithography system (EUV scanner), the latest equipment for advanced chip manufacturing, has been blocked. The only supplier is ASML, a Dutch company, and the Dutch government refused to extend an export license to China in 2019, following US pressure. Replicating the technology, perfected over 30 years, would also be challenging for China.
Additionally, in 2022, the UK government blocked Nexperia, a Chinese-owned Dutch chipmaker, from acquiring Newport Wafer Fab, the UK’s premier microchip factory. These moves shed light on the West’s increasing anxieties over Chinese investment in critical industries and their unwillingness to take risks with national security.
- Low-cost Manufacturing
China’s emergence as a world dominator in the semiconductor industry is mainly due to its cost-effective fabrication capacities. The nation’s relatively low labor costs and state incentives have drawn in investment from multinational chip-making companies hoping to capitalize on these perks.
IC manufacturers in China have leveraged low wages to slash production expenses, making their products more competitively priced. Moreover, the nation’s massive population provides an enormous domestic market for these producers, allowing them to realize economies of scale that drive prices down even further.
Moreover, China’s consumer electronics industry has experienced phenomenal growth in recent years, propelling the success of its IC sector. With soaring demand for smartphones, computers, and other electronic devices, Chinese IC producers have capitalized on their cost-effective production capacity to get a hefty stake in this flourishing market.
Additionally, China’s focus on advanced manufacturing technologies such as 5G, artificial intelligence, and the Internet of Things (IoT) has helped its IC manufacturers produce top-notch chips with cutting-edge features at a bargain. Chinese IC manufacturers have seized the opportunity presented by these technologies, enabling them to solidify their place in the global IC market.
- International Trade
China has leveraged strategic international trade practices to ascend to the top of the global integrated circuit (IC) market. The country has acquired large quantities of raw materials and cutting-edge semiconductor manufacturing equipment and technology, such as lithography machines, to power its domestic IC production, dramatically increasing China’s market competitiveness.
China also exports significant volumes of ICs to various countries worldwide, such as the United States, Europe, and Japan. Chinese ICs have found favor with foreign buyers due to China’s cheap labor and government incentives that drive down manufacturing costs, making Chinese ICs more affordable and competitive in the global market.
Chinese IC companies have leveraged strategic partnerships with external entities and snapped up foreign firms to gain access to global expertise, intellectual property, and technology. For instance, China’s Tsinghua Unigroup bagged a controlling 51 percent majority stake in the server business of the American multinational IT company Hewlett Packard (HP) in 2015, thus gaining access to HP’s server and data center expertise.
China is surging to the forefront of the global IC market by leveraging international trade, enabling Chinese semiconductor companies to bolster their IC design, fabrication, and packaging capabilities. Ultimately, this savvy move is decreasing their reliance on foreign technology, challenging the dominance of traditional powerhouses such as Japan, Europe, and the US.
China’s investment and support for domestic IC production and design have transformed the country into a competitive player in the global IC market. With ongoing government support and a drive for innovation, this power shift denotes a remarkable transformation in the semiconductor industry, positioning China for market dominance.