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Topic: China’s Semiconductor Industry: Progress, Priorities, and National Strategy

ChinaTopic: China's Semiconductor Industry: Progress, Priorities, and National Strategy

Shan Zenghai, the chief engineer of Xuzhou Construction Machinery Group, was given a moment of recognition by President Xi Jinping during the annual session of China’s national legislature. Xi had recognized Shan from a televised interview earlier that day in which Shan had discussed how domestically made heavy machinery had gained a presence both at home and abroad. Shan was attending a deliberation with deputies from the delegation of Jiangsu province, where he delivered more good news to Xi. He informed the president that the 220-(metric) ton all-terrain crane, which Xi had ridden in 2017 during his inspection tour of XCMG, could now be 100 percent domestically produced as compared to 71 percent in the past.

Xi was curious about the crane’s chips and asked if they were also domestically made. Shan confirmed that they were. XCMG’s progress on the chip front is an excellent example of China’s efforts to achieve proficiency in the sector, which is becoming increasingly important for national security. Experts have noted that China’s growing capabilities in chip-making are laying a strong foundation for the country’s sprawling digital economy.

During the annual session, the Government Work Report was revealed, which stated that key priorities this year included pooling quality resources and making concerted efforts to achieve breakthroughs in core technologies in key fields. Jin Zhuanglong, the minister of industry and information technology, the nation’s top industry regulator, said that persistent efforts were needed to tackle problems in crucial technologies. One of the ministry’s top priorities during the 14th Five-Year Plan (2021-25) period is to advance the modernization of industrial chains and encourage companies to develop core technologies, such as high-end semiconductor equipment.

The Chinese government’s focus on advancing technology comes as no surprise as it is part of a broader national strategy to move towards becoming a more innovative economy. China is keen to reduce its reliance on foreign technology and boost its domestic capabilities to become a technological superpower. To achieve this goal, the country is investing heavily in research and development and encouraging companies to develop cutting-edge technologies.

China’s progress in the chip-making sector has been impressive in recent years, and it is now considered to be a major player in the global semiconductor industry. China is home to some of the world’s leading chip manufacturers, including Huawei’s HiSilicon and Semiconductor Manufacturing International Corporation. The country’s growing capabilities in this sector will undoubtedly provide a significant boost to the country’s economy in the years to come, especially as the demand for chips continues to grow.

The Chinese government’s focus on developing core technologies such as chip-making is an essential part of the country’s broader national strategy to become a more innovative economy. China’s growing capabilities in this sector will undoubtedly provide a significant boost to the country’s economy, and the government’s investments in research and development will help the country achieve its goal of becoming a technological superpower. The progress made in the chip-making sector is a testament to China’s growing capabilities in this field and is laying a strong foundation for the country’s sprawling digital economy.

The semiconductor sector has gained significant attention from senior executives and academicians, as evidenced by their increased involvement in the National People’s Congress (NPC) and as national political advisers. This increased involvement reflects a strong resolve to develop the strategically important sector. For example, Zhang Suxin, chairman of Huahong Group, a chipmaker, was elected a deputy to the NPC for the first time. Similarly, Chen Tianshi, chairman of Cambricon Technology, a Chinese AI chip company, was elected as a national political adviser for the first time.

Other senior executives from chip-related industries who were elected to serve in the NPC and as national political advisers include Li Shushen, president of the University of Chinese Academy of Sciences, a renowned semiconductor expert. Fu Zhiwei, chairman of Xuzhou B&C Chemical Co Ltd, a domestic company specializing in photoresist, a photosensitive material crucial for chipmaking, was also elected. All of these newly elected officials have called for more efforts to develop the semiconductor sector and drafting a chip law to pursue breakthroughs.

Xie Shanghua, a member of the 14th National Committee of the Chinese People’s Political Consultative Conference (CPPCC), the nation’s top political advisory body, emphasized the need to prioritize the development of chips as part of the national security strategy. In her proposal to the two sessions, Xie suggested that the NPC should take the lead in formulating a chip law, among other measures, to ensure the sustainable, healthy, and high-quality development of the semiconductor sector over the medium to long term.

The involvement of senior executives and academicians in the NPC and as national political advisers highlights the importance of the semiconductor sector in China’s national strategy. This emphasis is also reflected in the country’s recently announced 14th Five-Year Plan, which prioritizes technological innovation, including the development of semiconductors. This renewed focus on the semiconductor industry is driven by China’s desire to reduce its dependence on foreign technology, particularly in light of recent trade tensions with the United States.

Overall, the involvement of senior executives and academicians in the NPC and as national political advisers underscores China’s commitment to developing its semiconductor industry. It is also a sign that the government is willing to work closely with industry experts to achieve this goal, including drafting legislation to support the development of the sector. This bodes well for the future of the semiconductor industry in China and suggests that the country is on track to become a global leader in this strategically important field.

Xie, a member of the 14th National People’s Congress (NPC) and chairman of Shenzhen Goodix Technology Co. Ltd., believes that the chip policies implemented in China so far have mainly been regulations and departmental rules at the State Council level. He suggests that enacting a chip law by the NPC can better promote the industry’s development. By doing so, efforts can be made to mobilize national resources and unite leading enterprises to jointly tackle key problems and support the research of equipment components and advanced manufacturing processes of 7 nanometers, 5nm, and 3nm.

Xie’s proposal follows similar efforts made by major economies worldwide, including the United States, Japan, and the European Union. These countries have rolled out policies or laws to fuel the development of their homegrown chip industries. The emphasis on achieving breakthroughs in chips is an important part of China’s broader push to hone its science and technological prowess. In 2022, China’s R&D spending exceeded 3 trillion yuan ($436.72 billion), accounting for 2.55 percent of the country’s GDP.

China’s increasing investment in R&D has been reflected in the 2022 Global Innovation Index. The World Intellectual Property Organization reported that China rose to 11th place, up from 34th in 2012. China remains the only middle-income economy in the top 30, highlighting its efforts in boosting its innovation and technology development.

Yao, a member of the 14th CPPCC National Committee and chairman of Konfoong Materials International Co. Ltd., called for more efforts to stimulate the innovative vitality of enterprises. He highlighted some of the challenges faced by companies, such as insufficient R&D funding and difficulty in determining the development direction of technology and products. Yao suggested that there is an urgent need to stimulate the innovative vitality of private enterprises, particularly those in a relatively low-end industrial chain position, who are unable to support a large number of scientific and technological research and development projects.

Konfoong Materials specializes in the R&D and production of ultra-high purity metal materials and sputtering targets for ultra-large-scale integrated circuits. Yao believes that private enterprises, especially those in the manufacturing industry, have a critical role to play in driving innovation and technology development. However, many private enterprises face significant challenges in accessing government research funds allocated for scientific research projects.

There is growing recognition of the need to promote the development of China’s chip industry and to stimulate innovation in technology and products. By enacting a chip law, mobilizing national resources, and uniting leading enterprises, China can continue to strengthen its position as a leader in innovation and technology development.

Yao Jianquan, a member of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), proposed during this year’s two sessions that the Chinese government should establish special policies that support the enhancement of manufacturing enterprises’ R&D capabilities. He also called for the establishment of a long-term mechanism that encourages enterprises to improve their R&D core capabilities. This is a timely proposal considering the rapidly evolving technological landscape that demands innovation and research to maintain competitiveness.

Academician Liu Zhongfan of the Chinese Academy of Sciences, also a member of the CPPCC National Committee, believes that the establishment of integrated circuit (IC) colleges is one of the most critical measures to address the “bottlenecks” in the semiconductor industry. He added that in the future, more universities should establish IC academies with a focus on cultivating top talent with interdisciplinary capabilities while avoiding repetitive investment. The fundamental way to solve challenges in the chip sector is to cultivate leading enterprises with international competitiveness, he noted.

Wei Jianguo, former vice-minister of commerce and vice-chairman of the China Center for International Economic Exchanges, emphasized that the chip sector requires highly intensive investment in capital, talent, and technology. He noted that these three factors are essential to ensure its healthy development. Wei Jianguo also called for more investment in indigenous R&D efforts.

Roger Sheng, vice-president of US market research company Gartner, said that China is seeking a more flexible supportive policy that can better mobilize resources in the IC sector to avoid wasting time and resources in exploring ways to solve bottlenecks. He emphasized the importance of being agile and responsive to rapidly changing market dynamics.

According to research company Daxue Consulting, the Chinese mainland consumes more than half of the world’s semiconductors, which are then assembled into tech products to be re-exported or sold in the domestic market. The Semiconductor Industry Association, a Washington-based group that represents the US semiconductor industry, highlighted that access to this massive Chinese market is crucial for the success of any globally competitive chip firm. Meanwhile, the Chinese mainland is also playing an increasingly important role in the global chip manufacturing layout, accounting for 11 percent of worldwide semiconductor fabrication capacity in 2019. The figure is projected to reach 18 percent in 2025 and nearly 19 percent in 2030, according to the SIA.

In conclusion, the Chinese government’s proposal to establish special policies to support the enhancement of manufacturing enterprises’ R&D capabilities is critical to the semiconductor industry’s future. Building IC colleges, cultivating top talent, and investing in indigenous R&D efforts are among the measures required to address the bottlenecks in the chip sector. Given the highly capital-intensive nature of the industry, a more flexible supportive policy that mobilizes resources in the IC sector is necessary. With China being the world’s largest chip market and playing an increasingly important role in global chip manufacturing, it is vital to maintain a competitive edge in the semiconductor industry by constantly investing in innovation and R&D.

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