There is no doubt that China is the largest consumer of semiconductors, accounting for 45% of global chip demand for domestic demand and export. However, more than 90% of China's chip demand depends on imported integrated circuits. Chinese integrated circuit companies entered the semiconductor market late, about 20 years behind other countries. Therefore, in this industry whose success depends on scale and learning efficiency, China has always been struggling to catch up with other competitors. The Chinese government has tried many times to establish a local semiconductor industry, but they have failed to bear fruit. However, it now appears that there has been a turning point in both industries and policies.

Nowadays, low-cost smart phones designed in China are flooding the market. For example, phones designed in China and using Android systems were unknown soldiers five years ago, but now they have captured 50% of the global market. At the beginning of 2014, Lenovo Group first acquired IBM's low-end server business called "x86 server" for US$2.3 billion, and then purchased MOTOROLA mobile department from Google for nearly US$3 billion. These major acquisitions show that the hardware customer base is shifting. To China.

From automobiles, industrial control to corporate equipment, etc., multinational companies in various industries have set up design centers in mainland China to get close to consumers and use local Chinese talents. McKinsey’s research results show that more than 50% of personal computers and 30% to 40% of built-in systems (commonly found in automotive, commercial, consumer, industrial, and medical applications) contain content designed by China, including those designed by Chinese companies. Designed directly or developed by the Chinese research office of an international company. As design activities continue to move to China, China will soon be able to control up to 50% of the global hardware design (including phones, wireless devices, and other consumer electronic products).

Fabless semiconductor companies are also emerging in China to serve local consumers. For example, Spreadtrum Communications Co., Ltd., which is headquartered in Shanghai and designs mobile phone chips, and HiSilicon Co., Ltd., which is headquartered in Shenzhen, which specializes in supplying Huawei, and is also one of the largest semiconductor design companies in China, has been fast in recent years. Growing local design company.

Local fabs are showing slow but steady growth. As Samsung, TSMC, Texas Instruments and other international companies set up factories in China, a real technology cluster area is gradually forming, and domestic manufacturers such as Shanghai Huali Microelectronics, SMIC, Wuhan Xinxin and other large domestic fabs It is expected to benefit from this.

Market-based policy

Previous investment activities led by the government did not achieve the expected results. Therefore, the Chinese government now adopts a market-based investment approach, that is, professionals decide how to allocate investment funds for profit, but they will still cooperate The government’s policy goals. Chinese government officials have organized a unique dedicated team responsible for formulating a set of positive growth strategies. The group has also assisted in the development of a policy framework. The goal is to achieve a compound annual growth rate of 20% for the industry by 2020. The government may also provide a maximum of RMB 1 trillion (170 billion yuan) in the next 5 to 10 years. U.S. dollar) financial assistance.

In order to avoid the dilemma of loose sand like before, the Chinese government will strive to cultivate national champion companies/provinces, which are leaders in all key areas of the semiconductor market (including design, manufacturing, mold, packaging and testing), as well as several potential companies. Provinces forming technology cluster areas.

For example, the state-owned Ziguang Group recently bought two of China’s top four fabless semiconductor companies (in 2013, it bought Spreadtrum Communications for 1.7 billion yuan, and then RDA Microelectronics for 900 million yuan), The plan is to merge these two companies. The new policy framework particularly encourages domestic integration in the field of packaging and testing.

Impact on the semiconductor industry

The Chinese government announced the main framework of the new national semiconductor policy in June 2014. The details and the long-term impact on the development of the industry remain to be seen. Will China's semiconductor industry thus leap to the international stage, or will it continue to lag behind other competitors? In the medium term, there may be three effects.

1. Rising pressure for localization

The intention of the Chinese government to urge the formation of national champion companies/major provinces will benefit local Chinese companies. According to industry estimates, in 2015, more than half of the world's phones will be designed by Chinese original equipment manufacturers. Under this national champion enterprise model, the low-cost strategy of domestic suppliers and strong local technical support will be more attractive to manufacturers.

2. For second-tier companies, there will be more opportunities for partnerships

In the past, the Chinese government's policies related to semiconductors did not favor international companies, but now, Chinese government leaders are beginning to understand that this industry needs to cooperate with international-level technology companies to strengthen the cultivation and supply of local talents. Therefore, they are more willing than in the past to accept arrangements that will allow international companies and national champion companies to achieve a win-win situation.

3. Chinese companies will become more and more active in international mergers and acquisitions

Indeed, it is difficult for Chinese companies to build a complete and competitive semiconductor value chain with bare hands without relying on foreign capital, but China may not achieve government goals by cooperating with international companies alone. China should continue to actively seek opportunities to obtain international intellectual property rights and professional technology to transfer back to China.

How should multinational companies respond?

Although most major international semiconductor manufacturers have invested heavily in their operations in China in recent years, many companies have still failed to give full play to their strengths, especially in departments other than sales and marketing. In view of the aforementioned future policies and industry trends, it is recommended that large multinational companies continue to increase their presence in China.

Starting from the most urgent point, that is, thinking about the possible effects of China's policy changes, business leaders can reflect on questions including: How should your company's operations fit in with the new plans of the Chinese government? Are your relations in China good enough to allow you to foresee the risks that may arise from changes in domestic policies?

Market-related questions include: In the face of Chinese customers' special buying preferences and supplier management philosophy, does your company have a product plan that can compete for the best? Can your company respond to the new demands of Chinese consumers as quickly as local companies? With international customers building design centers in mainland China, can your company move with your customers?

Competence-related questions include: How does your company use Chinese manufacturing and design talents to shine in China and even internationally? Are the capabilities and authorizations of your company's leadership in China equivalent to those of your headquarters? Are there sufficient connections, experience and understanding between your company’s international leaders and the Chinese market? How substantial is your company's talent pool in China?

None of these questions has a correct answer. When companies arrive in China, they will face unique challenges due to their different roles and positions in the market.