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Junko Yoshida
3/25/2014 08:30 AM EDT
SHANGHAI — The semiconductor business in China is abuzz over the huge chunk of money China's central and local governments are about to plunk down on the domestic chip industry.
The combined investments over the next 10 years range from $20 billion to $200 billion, according to the word on the Chinese street. The story has countless versions, each with a different sum of money, leading skeptics to wonder if all the talk is just a matter of Chinese bravado, if not an urban legend.
But based on EE Times interviews with a dozen insiders -- ranging from entrepreneurs and investors to the CEOs of fabless chip companies in Shanghai and Shenzhen and well established industry officials in Beijing -- the government commitment to the semiconductor industry appears to be real. The planned investment, combining contributions from the central and local governments, is likely to be $10 billion to $15 billion per year, starting in 2015. Some say it might be stretched over 10 years, others say five.
Among variations on the story, there's one common element on which everyone seems to agree.
The new investment in China's semiconductor industry will be distinctly different from Beijing's top-down order in 2000 to "encourage the development of the IC industry in China."
Known as Policy No. 18, the 2000 directive reportedly launched a network of state-owned technology incubation centers throughout China. The policy had some positive effects, but never really succeeded in generating a star semiconductor company able to compete with counterparts in the West.
Setup funds
Rather than expecting the government to dictate which IC industry sectors should get investment money, the idea that has gained consensus among locals today is to "set up a fund" and let professional investors place bets on which Chinese entities -- fabless, foundries, and/or research institutes -- deserve the funding. Moreover, the overseers of such investment would not be the government, but investors, who would demand tangible results and a real return on their investments, sources said.
As one fabless chip company CEO put it, the very idea of "letting the private sector play" in making investment decisions illustrates a budding shift in China's economic structure -- slowly transitioning from the planned model to a more market-driven economy.
While the government has so far made no announcement about actual dollars and cents, China's renewed commitment to IC technology is "public" and "clear," several industry sources pointed out.
Prime Minister's report
A case in point is the Prime Minister's "government work report" issued just this month. The Prime Minister, who represents the State Council, talks about last year's achievements in managing the country and this year's work plan. The report's release is regarded in China as one of the most significant events of the National People's Congress and Chinese People's Political Consultative Conference, an annual national meeting held in late February or early March.
In this year's report, Prime Minister Li Keqiang specifically mentioned "integrated circuits," in the context of "using innovation to support and lead economic structural improvement and upgrading."
More specifically, in the report, he said:
We will build a platform for supporting business startups and innovation in emerging industries. We will strive to catch up with and overtake advanced countries in areas of new-generation mobile communications, integrated circuits, big data, advanced manufacturing, new energy and new materials, and to guide the development of emerging industries.
For outsiders, especially in the West, this sounds like Beijing boilerplate, designed to pay lip service to high-tech industries in China.
But insiders in China see substance here.
Several people who have worked in China's electronics industry for decades pointed out that this is the first time in 64 years that the Prime Minister specifically mentioned such details as integrated circuits in his report. This carries a lot of weight and inspires hope in China's semiconductor industry.
All the same, it's still possible that China's "one trillion RMB" (roughly US$150 billion) investment in the semiconductor industry over the next 10 years turns out to be pie-in-the-sky. It could fizzle, or worse, blow up in the face of China's local governments, if not carefully planned and articulated with clarity and transparency.
What if China buys Imagination?
To start, more discussion will be needed as to how the investment funds will be created and where the money will be funneled. More important, figuring out how best to use the money to trigger "multiple" financial benefits in the Chinese electronics industry will be critical, an industry official based in Beijing, who spoke on the condition of anonymity, told EE Times.
It's one thing to invest in a fabless chip company in China in hopes of creating a globally competitive player in a segment of the electronics market. But, said the source, what if China's private fund decided to use the government's investment money to acquire a Western company possessed with key intellectual property, such as the UK's Imagination Technologies?
Hypothetically speaking, he said, Imagination would become a Chinese company, its MIPS roadmap aligned with China's supercomputers (which are based on MIPS cores) and with that of Beijing-based fabless chip company Ingenic (whose platform is also based on MIPS). In this dream scenario, China would build a new ecosystem that eventually rivals ARM in Cambridge, thus triggering multiple impacts on China's electronics market.
This is the sort of provocative thinking not often associated with Beijing.
Perhaps even more important is for China to design the whole investment process with more rigor, discipline, and transparency.
One Shanghai-based fabless chip company CEO asked, "Remember the subprime mortgage crisis in China triggered by a 4 trillion RMB stimulus package?"
Just to recap, the government's pursuit in 2008 of a 4 trillion RMB ($645 billion) stimulus package pushed local governments' debt levels sky-high.
The National People's Congress budget report issued in 2013 said principal repayment of local government bonds in 2012 totaled 200 billion RMB. Some experts say that, even based on conservative estimates, local government debt may now exceed 12 trillion RMB.
Caixin, a Beijing-based media group dedicated to financial and business news, reported last year:
As a member of World Trade Organization since 2001, China also needs to be mindful that any investments in specific companies aren't seen as protectionist subsidies.
A few executives in Shanghai suggested that providing investment in the form of research grants to national labs or industry institutes might be a more internationally acceptable way to divvy up the swag.
What happened to EC's plan?
There's ample evidence that this sort of government-led initiative doesn't necessarily pan out. Look no further than what Europe has gone through.
It was the spring of 2013 when the European Commission launched a campaign of public investment in micro- and nano-electronics with the aim of doubling chip production on the continent to around 20 percent of global production. The plan was to channel more than €5 billion (about $6.4 billion) of public authority money into research, development, and innovation over the next seven years to match a similar amount of investment from companies supported by the plan.
Last week in Shanghai, when asked whatever happened to the €5 billion plan, Joep van Beurden, CEO of CSR in Cambridge, UK, said, "I was one of those people in Europe much excited about the European Commission's renewed interest in semiconductors." However, the plan morphed into something that was spread out and shared among various IT sectors in Europe. "In the end, there was little focus left for the semiconductor business."
Jodi Shelton, co-founder and president of the Global Semiconductor Alliance, acknowledged that she went to Brussels determined to educate the European Commission on what it takes to support the global semiconductor industry.
Noting that semiconductors are "the bedrock of everything" in today's economy, Shelton said the GSA would welcome China's interest in supporting the industry. "We need to make sure that there will be a level-playing field for everyone involved in the global semiconductor industry." Moreover, she urged, imposing a strong regime of accountability on the recipients of such investments is essential.
— Junko Yoshida, Chief International Correspondent, EE Times
Related posts:
3/25/2014 08:30 AM EDT
SHANGHAI — The semiconductor business in China is abuzz over the huge chunk of money China's central and local governments are about to plunk down on the domestic chip industry.
The combined investments over the next 10 years range from $20 billion to $200 billion, according to the word on the Chinese street. The story has countless versions, each with a different sum of money, leading skeptics to wonder if all the talk is just a matter of Chinese bravado, if not an urban legend.
But based on EE Times interviews with a dozen insiders -- ranging from entrepreneurs and investors to the CEOs of fabless chip companies in Shanghai and Shenzhen and well established industry officials in Beijing -- the government commitment to the semiconductor industry appears to be real. The planned investment, combining contributions from the central and local governments, is likely to be $10 billion to $15 billion per year, starting in 2015. Some say it might be stretched over 10 years, others say five.
Among variations on the story, there's one common element on which everyone seems to agree.
The new investment in China's semiconductor industry will be distinctly different from Beijing's top-down order in 2000 to "encourage the development of the IC industry in China."
Known as Policy No. 18, the 2000 directive reportedly launched a network of state-owned technology incubation centers throughout China. The policy had some positive effects, but never really succeeded in generating a star semiconductor company able to compete with counterparts in the West.
Setup funds
Rather than expecting the government to dictate which IC industry sectors should get investment money, the idea that has gained consensus among locals today is to "set up a fund" and let professional investors place bets on which Chinese entities -- fabless, foundries, and/or research institutes -- deserve the funding. Moreover, the overseers of such investment would not be the government, but investors, who would demand tangible results and a real return on their investments, sources said.
As one fabless chip company CEO put it, the very idea of "letting the private sector play" in making investment decisions illustrates a budding shift in China's economic structure -- slowly transitioning from the planned model to a more market-driven economy.
While the government has so far made no announcement about actual dollars and cents, China's renewed commitment to IC technology is "public" and "clear," several industry sources pointed out.
Prime Minister's report
A case in point is the Prime Minister's "government work report" issued just this month. The Prime Minister, who represents the State Council, talks about last year's achievements in managing the country and this year's work plan. The report's release is regarded in China as one of the most significant events of the National People's Congress and Chinese People's Political Consultative Conference, an annual national meeting held in late February or early March.
In this year's report, Prime Minister Li Keqiang specifically mentioned "integrated circuits," in the context of "using innovation to support and lead economic structural improvement and upgrading."
More specifically, in the report, he said:
We will build a platform for supporting business startups and innovation in emerging industries. We will strive to catch up with and overtake advanced countries in areas of new-generation mobile communications, integrated circuits, big data, advanced manufacturing, new energy and new materials, and to guide the development of emerging industries.
For outsiders, especially in the West, this sounds like Beijing boilerplate, designed to pay lip service to high-tech industries in China.
But insiders in China see substance here.
Several people who have worked in China's electronics industry for decades pointed out that this is the first time in 64 years that the Prime Minister specifically mentioned such details as integrated circuits in his report. This carries a lot of weight and inspires hope in China's semiconductor industry.
All the same, it's still possible that China's "one trillion RMB" (roughly US$150 billion) investment in the semiconductor industry over the next 10 years turns out to be pie-in-the-sky. It could fizzle, or worse, blow up in the face of China's local governments, if not carefully planned and articulated with clarity and transparency.
What if China buys Imagination?
To start, more discussion will be needed as to how the investment funds will be created and where the money will be funneled. More important, figuring out how best to use the money to trigger "multiple" financial benefits in the Chinese electronics industry will be critical, an industry official based in Beijing, who spoke on the condition of anonymity, told EE Times.
It's one thing to invest in a fabless chip company in China in hopes of creating a globally competitive player in a segment of the electronics market. But, said the source, what if China's private fund decided to use the government's investment money to acquire a Western company possessed with key intellectual property, such as the UK's Imagination Technologies?
Hypothetically speaking, he said, Imagination would become a Chinese company, its MIPS roadmap aligned with China's supercomputers (which are based on MIPS cores) and with that of Beijing-based fabless chip company Ingenic (whose platform is also based on MIPS). In this dream scenario, China would build a new ecosystem that eventually rivals ARM in Cambridge, thus triggering multiple impacts on China's electronics market.
This is the sort of provocative thinking not often associated with Beijing.
Perhaps even more important is for China to design the whole investment process with more rigor, discipline, and transparency.
One Shanghai-based fabless chip company CEO asked, "Remember the subprime mortgage crisis in China triggered by a 4 trillion RMB stimulus package?"
Just to recap, the government's pursuit in 2008 of a 4 trillion RMB ($645 billion) stimulus package pushed local governments' debt levels sky-high.
The National People's Congress budget report issued in 2013 said principal repayment of local government bonds in 2012 totaled 200 billion RMB. Some experts say that, even based on conservative estimates, local government debt may now exceed 12 trillion RMB.
Caixin, a Beijing-based media group dedicated to financial and business news, reported last year:
This debt is worrying not only because of its size. Worse, it is not transparent and we don't know how it will be handled. Particularly of concern is the tendency of Chinese officials to let political expediency override economic sense.
The extent of the risk from local government debt has been a topic of hot debate. When, where and how it may destabilize the system is in fact hard to predict, given the opacity of government operations. Some analysts are worried about the sluggish growth of government revenues.
Meanwhile, many people both in and outside the government say that the risk of default is low because the central government would pick up the pieces if things go wrong. This view is mistaken. The central government isn't obliged to guarantee local government debt.
As a member of World Trade Organization since 2001, China also needs to be mindful that any investments in specific companies aren't seen as protectionist subsidies.
A few executives in Shanghai suggested that providing investment in the form of research grants to national labs or industry institutes might be a more internationally acceptable way to divvy up the swag.
What happened to EC's plan?
There's ample evidence that this sort of government-led initiative doesn't necessarily pan out. Look no further than what Europe has gone through.
It was the spring of 2013 when the European Commission launched a campaign of public investment in micro- and nano-electronics with the aim of doubling chip production on the continent to around 20 percent of global production. The plan was to channel more than €5 billion (about $6.4 billion) of public authority money into research, development, and innovation over the next seven years to match a similar amount of investment from companies supported by the plan.
Last week in Shanghai, when asked whatever happened to the €5 billion plan, Joep van Beurden, CEO of CSR in Cambridge, UK, said, "I was one of those people in Europe much excited about the European Commission's renewed interest in semiconductors." However, the plan morphed into something that was spread out and shared among various IT sectors in Europe. "In the end, there was little focus left for the semiconductor business."
Jodi Shelton, co-founder and president of the Global Semiconductor Alliance, acknowledged that she went to Brussels determined to educate the European Commission on what it takes to support the global semiconductor industry.
Noting that semiconductors are "the bedrock of everything" in today's economy, Shelton said the GSA would welcome China's interest in supporting the industry. "We need to make sure that there will be a level-playing field for everyone involved in the global semiconductor industry." Moreover, she urged, imposing a strong regime of accountability on the recipients of such investments is essential.
— Junko Yoshida, Chief International Correspondent, EE Times
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