Investment in Taiwan will help fix Mainland China's broken IC industry

NEW TRIPOLI, USA: Mainland China’s cross-straits investment in Taiwan will help the island country to survive the global crisis and at the same time help fix its own IC market, according to the report “Mainland China’s Semiconductor and Equipment Markets,” recently published by The Information Network.

“China’s chip industry is broken, a combination of the recession and too little money being spent by the government. Only $7 billion was spent on fabs in the past five years, enough to build only two 300mm fabs,” says Dr. Robert Castellano, President of The Information Network. “Investments by China into Taiwan will not only enable the country to endure its deepest recession, which was down 10.24% last quarter, but will catalyze a change in the Taiwanese government’s attitude toward semiconductor technology transfer.”

For years, rigid regulations controlled technology and monetary outflows from Taiwanese chip makers to China. Several factors played a role, such as concerns about China stealing and copying IP, fear that the technology would strengthen China’s military capabilities, and loss of jobs.

“Macroeconomic forces have changed the landscape. Taiwan needs money, and although the government may be reticent to give up its advanced technology, China’s massive economic stimulus package to Taiwan will serve to lessen regulations,” added Dr. Castellano. “This move will strengthen China’s semiconductor companies, minimizing the need to import the vast number of chips it currently does to manufacture consumer electronic products.”

China's IC industry is expanding rapidly. In 2008 Mainland China produced 42.5 billion ICs, which accounted for 24.3 percent of domestic demand as a result of massive building programs and the weak economy. In comparison, Mainland China produced only 20.9 percent five years ago.However, in 2008, consumption of ICs in Mainland China is outpaced production in domestically made ICs. Consumption grew 6.8 percent to 174.7 billion chips while production decreased 0.4 percent to 42.5 billion chips.

These issues are resulting in consolidation as the mainly foundry-based Chinese industry (SMIC, Grace, HeJian, ASMC, and CR Micro) competes with TSMC, UMC, and other entrenched Asian foundries. Hua Hong NEC Electronics will soon acquire Grace Semiconductor.

Things are also changing internally in China. As much as $25 billion is earmarked over the next five years to prop up the industry, including $5 billion for the joint venture between Elpida and Suzhou Venture Group and $5 billion for Sino-chip.

“Areas propelling the Chinese IC industry are part of the government stimulus program such as projects to supply subsidized electronic goods to rural areas of China. The construction of 3G networks, the expansion of mobile TV operations are big areas of opportunity,” added Dr. Castellano. “The Chinese government has realized internal stimulus was not enough without the advanced technology needed from Taiwan to make these programs successful.”