At $260 Billion, China Spends More Each Year on Semiconductor Imports Than It Does on Oil. to End the Country's Reliance on Fo
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ON THE COVER At $260 billion, China spends more each year on semiconductor imports than it does on oil. To end the country’s reliance on foreign technology and break the dominance of U.S., South Korean, Taiwanese and Japanese chip companies, the government is pouring billions into creating Chinese versions of industry leaders. The potential for market upheaval is enormous -- if these up-and-comers can clear the technical hurdles in their way. CHENG TING-FANG Nikkei staff writer SHANGHAI/TAIPEI Business is booming at the Gansu and Yunnan and even Mongolia. All told, Shanghai Integrated Circuit Museum. some 200 groups came last year for an education in For most of its nine-year history, the museum China’s next big thing. has been mostly a place for school children to learn “Many of these representatives knew very little about the uses of computer chips. But it has become about chips, but they all want to capture this once- a hot ticket for officials from all over China ever in-a-lifetime investment opportunity being led by since Beijing declared that creating a world-leading high-ranked policymakers,” Long told the Nikkei semiconductor industry was a top national priority. Asian Review. On a recent weekday this spring, Lance Long, the This national enthusiasm reflects China’s tower- museum’s director, was hosting a tour for offi- ing ambitions for its semiconductor industry. China, cials from Urumqi, the Xinjiang capital known for and its young chipmakers, are clear about their being the world’s most landlocked city. Before that, goal: to break the dominance of American, South Long hosted groups from distant provinces such as Korean, Taiwanese and Japanese semiconductor 8 NIKKEI ASIAN REVIEW APR. 30-MAY 6, 2018 Read more at asia.nikkei.com 9 ON THE COVER 1990s, were mostly unsuccessful. Its technology is first batch of memory chips. Right now, China has far behind that of global giants such as Samsung yet to produce such chips in substantial volumes. Electronics and Intel, making China’s goal of pro- But industry executives say Chinese memory chips ducing 75% of the chips it uses domestically by 2025 could cause a major disruption in the market once seem highly ambitious, analysts at Natixis say. its manufacturers are able to produce them in suf- oup Unlike its previous efforts, when its investments ficient quantities, which they expect to happen in r were scattered and ill-placed, China is seeking to three to five years. Unig bring in expertise from the outside by luring foreign When that happens, it could have an impact on companies to set up advanced production facilities two markets: NAND flash memory and DRAM singhua T within its territories. This will memory chips. of help create a supply chain and Production of global NAND attract talent. The latest move flash memory-- a $58 billion Courtesy by the U.S. to bar American market annually -- is con- companies from selling any trolled by only six companies: components to ZTE, a Chinese Samsung Electronics, Toshiba, companies. The government wants to create Yangtze Memory -- from smartphones and PCs to connected cars and telecom equipment provider Western Digital, SK Hynix, Chinese versions of most of the industry’s leaders, Technologies is data centers -- and therefore have strong implica- and smartphone maker, has Micron Technology and Intel. spending $24 billion then leapfrog them in the race for advanced chips tions for intelligence. China wants to defend against only strengthened China’s de- DRAMs are dominated by to build one used in artificial intelligence. of China’s first the types of national security breaches exposed by termination to replace as many an even smaller group of com- In March, Premier Li Keqiang named semi- advanced memory Edward Snowden’s 2013 leaks, which revealed con- foreign suppliers as possible, panies: Samsung, SK Hynix conductors as the top priority of the 10 industries chip factories nections between American technology providers according to multiple industry and Micron, which together China wants to foster in its “Made in China 2025” in the city of Wuhan. and the U.S. National Security Agency’s vast sur- executives. (See related story on held 95% of the $71 billion initiative. But China’s ambitions were already clear veillance program. Page 20.) global market in 2017, accord- in 2014 when it launched the National Integrated This position is a mirror-image of the increas- Analysts also say China has ing to Taipei-based research Circuit Industry Investment Fund -- better known ingly hard-line U.S. stance toward China. American learned from its past mistakes. company TrendForce. as the Big Fund -- in 2014 with 138 billion yuan regulators have cited national security concerns “It’s totally different from Helped by strong demand ($21.9 billion) in seed capital, which it hoped would when it has curbed chip and other deals with decades ago when China suf- and tight supplies, Samsung turbocharge investment from local governments Chinese groups, and has recently fired the opening fered through a frustrating ex- CHINESE CHIP INDUSTRY EXECUTIVE and SK Hynix generated some and the private sector. The Big Fund is in its second shots in a trade war to penalize China for stealing perience to build semiconduc- $85 billion in memory chip phase of fundraising for at least 150 billion yuan. high-tech intellectual property. To Beijing, such tors out of nowhere,” Mark Li, an analyst at Bernstein sales in 2017, higher than the gross domestic prod- Credit Suisse estimates China’s total investment to moves point to an all-out U.S. effort to slow China’s Research said. “This time, it’s a totally different story uct of Luxembourg. The combined semiconductor be about $140 billion. aggressive attempt to become a new semiconductor as the country has all the right ingredients, including operating profit from both companies -- about $46 China wants to end its reliance on foreign tech- superpower. a massive market and strong local makers of smart- billion -- would be 1.6 times higher than what the nology -- its annual imports of $260 billion worth of “The U.S. is really feeling the threat,” said Jerry phones, TVs, PCs, and automobiles ... It could be two biggest Japanese companies, Toyota Motor and semiconductor-related products have recently risen Peng, an analyst at research unit IEK of Industrial just a matter of time for them to bear fruit.” SoftBank Group, earned together in fiscal 2017. above its spending on oil. And it also wants to move Technology Research Institute in Taiwan. “It’s so unhealthy about the recent memory price its manufacturing sector to higher-value products. There is no guarantee of success for China’s chip MEMORY CHIP PUSH The first fruits of Beijing’s hike, and it’s so unfair that such important com- But there are also national security concerns. push, however. The country’s previous efforts to big investment in chips could come as soon as the ponents are controlled by very few companies,” a Chips serve as the brains for every electronic device build a chip industry, including a major drive in the end of next year, when it will begin shipping its Chinese chip industry executive told the Nikkei 10 NIKKEI ASIAN REVIEW APR. 30-MAY 6, 2018 Read more at asia.nikkei.com 11 ON THE COVER Asian Review. “The road could be bumpy, but we and analysts have said. need to have our domestic memory chips for sure, Roger Sheng, an analyst at Gartner, said Chinese and we wouldn’t care at first whether we could memory chipmakers still have a long way to go be- make a profit or whether we cause a price crash in fore they make a dent in the market. Still, his com- the market.” pany expects that in the NAND flash memory seg- A little-known state-backed conglomerate called ment, Yangtze Memory could come to replace some Tsinghua Unigroup will play a key role in determin- low-end providers in three years and compete with ing whether Chinese chipmakers can successfully first-tier players in five years. challenge the dominance of Samsung, SK Hynix Samsung Electronics CEO Kim Ki-nam and and Toshiba in the memory market. Micron CEO Sanjay Mehrotra are aware of China’s Tsinghua initially tried to buy its way into the offensive, but both say Chinese chipmakers face market, but its $23 billion bid to acquire Micron high technological barriers to entering the market. and a separate attempt to become the largest share- “We recognize that the Chinese government is sup- holder of Western Digital were blocked by the U.S. porting [these emerging players] actively ... but it’s government. At the same time, the industry’s dom- difficult to narrow technological gaps in the short inant players were reluctant term solely through big in- to license their technology to vestments,” Samsung’s Kim the aggressive latecomer. But said at the company’s annual general meeting in March. those setbacks did not dampen Tsinghua’s enthusiasm. The memory chip market Tsinghua Unigroup Chairman Zhao Weiguo The group’s affiliate, Yangtze is notoriously volatile, swing- Reuters ing between periods of supply Memory Technologies, is spending $24 billion to build shortages and serious gluts. the country’s first advanced Despite China’s technological Another potential hurdle -- intellectual prop- memory chip factories in the hurdles, executives from top erty, including chip design and production tech- city of Wuhan. It has poached memory chipmakers worry niques -- is not a worry for Chinese chipmakers, thousands of engineers from that Chinese companies could analysts say. “Intellectual property issues would Samsung, SK Hynix, Micron flood the market with cheap never be a roadblock for these newcomers,” said and Nanya Technology (see semiconductors, leading to a IEK’s Peng.