FILE PHOTO: A woman visits a semiconductor device display at the Appliance and Electronics World Expo (AWE) in Shanghai, China March 23, 2021. REUTERS/Aly Song/File Photo/File Photo
SHANGHAI: China’s semiconductor industry will overcome challenges and achieve long-term sustainable growth, according to officials, industry experts and company executives.
The prospect would be fuelled by the huge domestic market, consistent input into research and development (R&D) and the determination to achieve breakthroughs in core technologies, they said.
Amid a harsh external environment, including increasingly tightened export controls of chips to China by the United States, more efforts would be made to encourage domestic chip manufacturers to overcome technological hurdles while deepening cooperation with other countries, said the industry observers.
As Microsoft co-founder Bill Gates predicted, Washington’s restrictions have not only cost highly paid jobs in the United States, but also spurred efforts by China to pursue self-sufficiency in crucial semiconductor technologies.
Shi Hongxiu, a professor of economics at the National Academy of Governance, said: “China can take full advantage of its super large market, which means the country has sufficient testing scenarios to verify its self-innovated technologies, lower its R&D costs, and escalate the pace of product output.”
As the world’s largest chip market, the Chinese mainland accounts for more than half the world’s semiconductors, which are assembled into tech products to be re-exported or sold in the domestic market, according to the research company Daxue Consulting.
Shi said: “Greater importance should be attached to creating an ecosystem for innovation, instead of just focusing on one specific technological breakthrough.
“As long as we have the right channels to keep abreast of the world’s leading technologies and cutting-edge knowledge, along with mutual learning among different populations, we will have numerous opportunities,” he added.
Last month’s tone-setting Central Economic Work Conference called for breakthroughs to be made in core technologies and also stressed the need to accelerate R&D and the application of cutting-edge technologies.
Wei Jianguo, a former vice-minister of commerce and vice-chairman of the China Centre for International Economic Exchanges, said the conference again highlighted China’s determination to focus on strategically important sectors such as semiconductors.
“The chip industry is known for being highly intensive in capital, talent and technology. These three factors are all needed to ensure its healthy development. We have to beef up our indigenous R&D push,” Wei said.
Wang Jiangping, vice-minister at the industry and information technology ministry, the nation’s top industry regulator, said: “Persistent efforts are needed to tackle problems in crucial technologies.”
One of the ministry’s top priorities during the 14th five-year plan (2021 to 2025) period is to advance the modernisation of industrial chains and encourage companies to develop core technologies such as high-end semiconductor equipment.
Local governments in areas such as Shanghai, Tianjin, and Guangdong and Zhejiang provinces have identified integrated circuits as one of their key industries during the plan.
Last year, sales revenue in the Chinese chip design sector reached 534.57 billion yuan (US$78.17bil or RM343.8bil), up by 16.5% year-on-year and showcasing sectoral resilience amid US export restrictions, according to preliminary data from the China Semiconductor Industry Association, or CSIA.
The data proved what Gates predicted earlier.
In an interview with Bloomberg in September 2020, he said that by forcing China to make its own chips, the United States would not only give up highly paid jobs but would also force China to become self-sufficient.
Greater importance
Wei Shaojun, president of the CSIA’s integrated circuit design branch, said that faced with Washington’s restrictions, “not only Chinese companies but those from overseas operating in China are attaching greater importance to the security of supply chains, fuelling the wider use of domestically designed chips”.
A microelectronics professor at Tsinghua University, Wei Shaojun also said the US crackdown on China’s chip industry is disrupting global semiconductor supply chains.
Toshiya Hari, lead analyst covering the semiconductor industry at investment bank Goldman Sachs, estimated that US export controls of high-end chipmaking equipment to China could have cost the world’s toolmakers US$6bil (RM26.4bil) in lost revenue last year, or 9% of their projected sales.
Experts said such restrictions create a sense of crisis among downstream users of chips. As a result, they seek secure supply chains less reliant on US chip technologies and products, thus opening up more opportunities for Chinese chip designers.
Wei, from the CSIA, said: “Many domestic chip design companies said last year they were granted access to some markets that they found difficult to enter in the past.”
Huang Qing, managing partner at Walden International, a US venture capital company focusing on cross-border investments, said that as the United States tightens control of key technologies, including premium processors, China has an opportunity to build up its semiconductor capabilities.
He added that although it lags behind some developed countries in terms of basic semiconductor materials, high-end chip-making equipment and chip design tools, China is home to leading global companies that integrate software and hardware in mobile phones, 5G communications, security equipment, new energy vehicles, and other areas.
These companies traditionally tend to cooperate with suppliers in Europe and the United States.
“But faced with widened restrictions by the United States, they feel an urgent need to work with Chinese semiconductor companies. By serving such tech heavyweights, Chinese chip companies have the chance to become global players,” Huang said.
He added that in 2021, the mainland imported chips worth more than US$400bil (RM1.76 trillion).
John Lee, a consultant for International Institute for Strategic Studies, a British think tank, said: “China is becoming a major player in the globalised chip value chain, a trend that US-led efforts are unlikely to derail.”
Li Xianjun, an associate researcher at the Chinese Academy of Social Sciences’ Institute of Industrial Economics, said China’s semiconductor industry has seen robust growth in recent years.
According to the CSIA, sales revenue for China’s integrated circuit industry exceeded one trillion yuan (RM643bil) for the first time in 2021, with year-on-year growth of 18%.
In 2017, the industry’s sales revenue stood at about 540 billion yuan (RM347bil).
For the first time, three mainland chipmakers accounted for more than 10% of the global foundry revenue in the first quarter of last year, according to Trend-Force, a market research and intelligence provider. Foundry is industry parlance for contract chip manufacturing.
According to data compiled by Bloomberg in June, Chinese chip companies are also growing faster.
In the past four quarters, 19 of the world’s 20 fastest-growing chip industry companies were based in China, compared with just eight the previous year.
In addition, more promising startups are emerging.
As of November, there were 50 semiconductor unicorns, or startups worth more than US$1bil (RM4.4bil), in China. Their total valuation was 858.4 billion yuan (RM552bil), according to New Fortune, a financial services platform.
Of the companies, 25 are chip designers, eight specialise in general processing units, and five are auto chip companies, New Fortune said.
Unicorns have also emerged in semiconductor materials, chipmaking equipment and electronically designed automation tools, with the aim of narrowing the gap between China and the United States in these areas, New Fortune added.
Unique opportunity
One of the promising startups is Horizon Robotics, the first Chinese company to commercialise self-designed processors for autonomous driving.
Yu Kai, the company’s CEO, said smart electric vehicles are a unique opportunity for China to develop its artificial intelligence chips.
“China is the world’s most vibrant market for smart electric vehicles (EVs), and the most competitive arena for global tech companies focused on intelligent driving. We believe China will also become a major source of innovation for the smart EV industry,” Yu said.In October, Volkswagen said it would spend 2.4bil (US$2.55bil or RM11.2bil), its largest single investment in China, to jointly develop driving-assist functions with Horizon Robotics for its EVs. The investment includes setting up a joint venture. — China Daily/ANN
