Manufacturing in China 

China Semiconductor Industry

With a booming electronics industry, the semiconductor industry has developed rapidly in China. The Chinese government has been aiming to further develop its semiconductor industry through information and the sector was identified as a key industry for development in the 11th Five-Year Plan. In 2007, sales revenue of China’s semiconductor market reached RMB 562.4 billion, growing by 18.6% from the previous year.   In 2007, sales revenue of China’s semiconductor market reached RMB 562.4 billion, growing by 18.6% from the previous year.
Although it has been recording a significant growth, China’s semiconductor industry has potential for further development. Under the Chinese government, a 17.0% value-added tax (VAT) has been imposed on semiconductor imports, while foreign and Chinese companies are eligible for various export tax rebates. As the issue raised concerns in the U.S., the Chinese government cancelled the export tax rebate policy and is implementing a new policy for all chip companies in China to be exempted from corporate income tax for a five-year period.    
An integral part of the semiconductor chip manufacturing industry, foundries in China have been recording an exponential growth with the introduction of the Semiconductor Manufacturing International Corporation (SMIC) and Grace in 2001. Since the establishment and commencement of production from 2002 to 2006, China’s foundry industry has garnered sales revenues amounting to RMB 220.6 million, which account for 12.0% of the global market. Figure 2.5.2 shows the sales revenue and growth of China’s foundry industry.    
In line with growing demands, the domestic production capacity has also increased. From 2002 to 2006, the production capacity of China’s foundry activities grew by 1.5 times, accounting for 7.2% of the overall global production.    
Within the industry, production capacity is focused on the 8 inch wafer as well as the 0.35-0.11 micron process, which represents 53.0% and 55.7% of China’s total production capacity respectively.    
Major Players    
Within China’s semiconductor industry, the key domestic players are namely SMIC, Hua Hong NEC and HeJian. Known as the largest semiconductor foundry in China, SMIC ranks among the world’s leading companies.    
Headquartered in Shanghai, SMIC is a pure-play foundry that offers 0.35 micron to 90 nanometers IC manufacturing services. In 2006, SMIC realized a gross profit of US$150.7 million, recording a growth of 68.0% from the previous year and accounting for 40.0% of China’s overall market share.    
Sales volume also reached US$1,465 million in the same year. Established in 2000 with wafer fabrication plants, Grace has entered into a strategic partnership with Sanyo Semiconductor in 2003, thereby fueling further growth of the company.    
Meanwhile, Hua Hong NEC, a joint venture between Hua Hong and NEC in an 80%-20% share, was the second largest foundry in terms of sales revenue in China in 2006. In a bid for further expansion, the company increased its production lines in 2007, with a total capacity reaching 110,000 pieces per month by the end of the year.    
Imports and Exports    
China’s semiconductor industry has been experiencing a healthy growth in the past years. In 2007, the export value of China’s IC market reached US$97.1 billion, growing by 26.3% from the previous year, while the import market amounted to US$78.4 billion, recording a growth of 10.2%.    
Foreign Players    
In 2006, the global semiconductor industry recorded a healthy growth, posting an expansion of 22.0% which amounts to approximately US$18.9 billion. Within China’s semiconductor industry, foreign companies dominate the chip suppliers industry.    
Intel is the leading foreign semiconductor provider with shipment revenue of US$8.4 billion in 2006, posting a decline of 8.0% from the previous year. In 2007, Intel set up an advanced 300 mm fab in Dalian, propelling the company’s total investment in the country to a figure close to US$4.0 billion. In late 2007, Intel announced its decision to develop a manufacturing base in China, in a bid to locate itself closer to the original equipment manufacturer, original design manufacturer and the electronics manufacturing services clients.    
Meanwhile, Texas Instrument ranked second in terms of revenue, amounting to about US$4.2 billion and growing by 32.2% from the previous year.    
Other significant players within China’s semiconductor industry include Hynix Semiconductor, Samsung, STMicroelectronics and Advanced Micro Devices (AMD).    
Future Outlook    
As electronics manufacturing continues to stay rooted in China’s manufacturing scene, the demand for semiconductors and manufacturing equipment is likely to grow. With the government’s encouragement, the industry is set to flourish in the years to come.Under the direction of the 11th Five-Year Plan, the Chinese government has established a fund to support homegrown research on the IC industry while continuing to provide more favorable tax policies.
Driven by the structural improvement and the growing popularity of consumer electronic products as well as the growth brought about by the 2008 Beijing Olympic Games and the World Expo, China’s IC market is expected to expand, and is estimated to exceed a 20.0% share of the global market.
In the coming decade, China’s semiconductor market is also expected to continue posting a rapid growth. According to market research, China’s semiconductor market is likely to grow by 12.0% in 2008, with revenues reaching US$58.0 billion.    
Research by CCID Consulting also indicates that by 2011, China’s semiconductor market is likely to realize a CAGR of 11.7%, while the sales revenue of the industry is estimated to reach US$6.5 billion, making up 15.9% of the global market share. On the whole, the industry may face challenges ahead as the Chinese government plans to enhance its economic structure and seek higher financial returns while cutting down on resource consumption in a bid to protect the environment.    
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