When China's Communist Party delegates meet on Monday to work out their economic plan for the next five years, the semiconductor industry will be high on the agenda.
Beijing's 30-year push to build a domestic chip sector has taken on a new urgency as Donald Trump's administration intensifies its hold on China's leading tech companies.
Washington has banned companies worldwide from making chips for Huawei, the telecommunications business. This is a potential death sentence for its subsidiary HiSilicon, China's greatest chip designer. The US has also prevented American companies from supplying Semiconductor Manufacturing International Corporation, China's most advanced chip maker, with the machinery it needs to make chips.
Experts and industry executives believe that despite the fact that China will invest an additional $ 1.4 billion in its technology sector by 2025, these targeted efforts by the United States are helping the country in both semiconductor supply and theirs Manufacturing to strangle, Beijing's push to develop the domestic chip sector to trigger much more difficult.
China's past efforts to develop its semiconductor sector have prioritized "building blocks" like chip manufacturing, packaging and testing, said Randy Abrams, head of Asian technology research at Credit Suisse. "But now they have to try to be less dependent on the US where they can."
Beijing's priorities now include improving its technological capabilities in electronic design automation (EDA) – the software used in chip design – and using the machines in chip manufacturing facilities. US EDA tool makers Cadence and Synopsys have a firm grip on the global advanced chip market, while Applied Materials, Lam Research and KLA Tencor dominate critical segments of state-of-the-art chip manufacturing equipment.
Analysts said that in China for semiconductor devices and EDA in the late 1990s, there was Huawei and ZTE, a low-cost provider that still lags behind its overseas counterparts in terms of technology. "The void is not just about a specific dollar amount, it also takes the time to develop the experience and talent," Abrams said.
The tools offered by Huada Empyrean, China's most advanced EDA company, clearly stand behind the skills SMIC, China's largest chip maker and leader in the chip industry, Taiwan Semiconductor Manufacturing Corporation, needs to create its most advanced products.
"A breakthrough in semiconductor devices is the biggest hurdle," said Zeng Guan-wei, an analyst with research firm Trendforce, adding that less than 10 percent of these machines used in China are made by domestic companies.
Device makers were just an afterthought in Beijing's earlier editions to the sector – and those were massive. According to the Semiconductor Industry Association, Chinese chipmakers have received around US $ 50 billion in subsidies only from the central government over the past 20 years. That's 100 times the amount companies receive in Taiwan, which is the world's largest chip manufacturing hub alongside South Korea.
An OECD study of 21 chip manufacturers around the world identified four Chinese companies among the largest recipients of government funds. The OECD found that SMIC and Tsinghua Unigroup, one of the leading Chinese chip design companies that has now also invested in production, received government support amounting to more than 30 percent of their sales between 2014 and 2018.
Even so, China's chip production has nowhere near met the country's needs. According to the China Semiconductor Industry Association, only 27 percent of the chips sold in the country were made domestically, with the remainder being covered by imports.
Beijing has pledged to invest heavily in response to pressure from Washington, in addition to new tax incentives for chipmakers. The fourteenth five-year plan is expected to bring more support.
However, some warn that China needs to recalibrate the way it supports the industry.
"I think funding isn't a problem now," said an engineer at SMIC. “But how are these grants distributed? Will some of the relatively lagging but important parts for the chip industry in China receive more attention, such as: B. EDA or production facilities? "
For example, software professionals could make a lot more money with Internet companies than with EDA companies.
The industry has also suffered from inefficiency. Hundreds of chip projects have failed over the past three decades because investors lacked the necessary technical knowledge or subsidies were diverted to independent real estate projects.
The promise of more government support to the industry could actually make things worse. In the first nine months of 2020, more than 13,000 Chinese companies registered as chip manufacturers, although many have no industry experience.
The National Development and Reform Commission, China's top state planning body, said this week the latest push should focus on preventing such waste.
"In China, there seems to be a tendency for enterprising people to take the opportunity to present themselves as patriotic investors when there is nationalist rhetoric," said Douglas Fuller, professor at Hong Kong City University and an expert on China's industrial policy sector. "I keep hearing how bad things are in most other sectors, so the prospect of big funding in the chip sector is like a magnet."