Opinionated - China Chipping Away to Semiconductor Dominance

[tonyget]

I didn't have the time to make it past the first third of the report, but it was a good read. Thank you for providing it. The details about the IC consumption/design gap and "dislocated purchasing" were also telling, as far as it related back to our previous discussions about IP protections. Should be interesting to see how this develops.

IC is China's single largest commodity in terms of import quota, even suppress those of oil. This overwhelmingly dependence on overseas supplies has concerned the gov, the development of IC is a top priority as the gov will carry out a series of policies to support the industries.


As you can see the gov is gonna throw tons of money in it

 

[LeveragedBuyout]

IC is China's single largest commodity in terms of import quota, even suppress those of oil. This overwhelmingly dependence on overseas supplies has concerned the gov, the development of IC is a top priority as the gov will carry out a series of policies to support the industries.


As you can see the gov is gonna throw tons of money in it

That's a lot of money, so it's clear they're serious. What's less clear is whether this is a good way to spend the money, given the dominance of the foreign semiconductor companies, the fact that many of the importers into China are subsidiaries of foreign manufacturers (and thus likely to continue to favor foreign semiconductor companies), and the length of time it will take to build a critical mass in this sector (likely at least a decade, if not two). These moves will further discourage foreign companies from conducting R&D in China for fear that the IP will be stolen and handed over to state-sponsored competitors. Oh well.

China would probably be better served by investing in green field areas of research, like nanotechnology, life sciences, and cybersecurity. However, given China's mercantilist nature and paranoia about foreign companies, it seems inevitable that China will try to seek autarky in all sectors, no matter how inefficient that is (it failed in the USSR, it failed in North Korea, and it will fail in China if China tries it).

That said, as a consumer, I welcome the increased competition and the potential pricing benefits.

 

[FairAndUnbiased]

That's a lot of money, so it's clear they're serious. What's less clear is whether this is a good way to spend the money, given the dominance of the foreign semiconductor companies, the fact that many of the importers into China are subsidiaries of foreign manufacturers (and thus likely to continue to favor foreign semiconductor companies), and the length of time it will take to build a critical mass in this sector (likely at least a decade, if not two). These moves will further discourage foreign companies from conducting R&D in China for fear that the IP will be stolen and handed over to state-sponsored competitors. Oh well.

China would probably be better served by investing in green field areas of research, like nanotechnology, life sciences, and cybersecurity. However, given China's mercantilist nature and paranoia about foreign companies, it seems inevitable that China will try to seek autarky in all sectors, no matter how inefficient that is (it failed in the USSR, it failed in North Korea, and it will fail in China if China tries it).

That said, as a consumer, I welcome the increased competition and the potential pricing benefits.

The number 1, 2, 3 etc. application of nanotechnology is in semiconductors. It is absolutely impossible to conduct nanotechnology research without semiconductor processing and characterization equipment. Nanotechnology applications such as photovoltaics, power transmission, memory, etc. all deal with semiconductor materials. The non-IT related part of nanotechnology (i.e. sensors, power, light emission or transmission, basically stuff unrelated to shuffling electrons as 1's and 0's) is the OSD part of the semiconductor market; the IT part is everything else. Non-semiconductor applications of nanotechnology are a very small market. A possible breakthrough is the replacement of Si as the gated conduction material in transistors with a low dimensional crystal like MoS2 or graphene. However, that is still a semiconductor application, even though the papers are all published as "nanotechnology".

This is why I am confident of catchup in the semiconductor industry - Chinese universities and institutes publish a vast amount of papers on nanotechnology, every province has at least 1 research level foundry and the country has the 5th largest commercial foundry in the world at SMIC. Once you have the hardware (the foundry), the software (the papers and the scientific momentum) and the people, catchup or even finding a technological breakthrough, even for niche applications, is very likely. Even if there is no catchup commercially, there will be a vast storage of intellectual property and experience at national labs, universities and partnered foundries, which allows for a quick industry buildup and the creation of competitors in case of any supply disruptions.

The main problem is, of course, the great wall of patents protecting certain chip architectures, making catchup in the materials, foundry and test/assembly fields much more likely than in design. However, even in design, Huawei has already begun to move all chip development in-house and other companies such as Lenovo and ZTE are likely to follow; this is all in addition to independent chip designers like.

Life sciences is even more dominated by the West than semiconductors, and since it supplies consumers directly, there is absolutely zero chance of catchup even with a major technological breakthrough due to media. In fact, semiconductors are the #1 potential field for catchup, especially foundry services and assembly/test, simply by volume of research papers coming out of China vs. the volume of research papers in life sciences. No technological breakthrough is required, merely parity.

 

[Beidou2020]

The number 1, 2, 3 etc. application of nanotechnology is in semiconductors. It is absolutely impossible to conduct nanotechnology research without semiconductor processing and characterization equipment. Nanotechnology applications such as photovoltaics, power transmission, memory, etc. all deal with semiconductor materials. The non-IT related part of nanotechnology (i.e. sensors, power, light emission or transmission, basically stuff unrelated to shuffling electrons as 1's and 0's) is the OSD part of the semiconductor market; the IT part is everything else. Non-semiconductor applications of nanotechnology are a very small market. A possible breakthrough is the replacement of Si as the gated conduction material in transistors with a low dimensional crystal like MoS2 or graphene. However, that is still a semiconductor application, even though the papers are all published as "nanotechnology".

This is why I am confident of catchup in the semiconductor industry - Chinese universities and institutes publish a vast amount of papers on nanotechnology, every province has at least 1 research level foundry and the country has the 5th largest commercial foundry in the world at SMIC. Once you have the hardware (the foundry), the software (the papers and the scientific momentum) and the people, catchup or even finding a technological breakthrough, even for niche applications, is very likely. Even if there is no catchup commercially, there will be a vast storage of intellectual property and experience at national labs, universities and partnered foundries, which allows for a quick industry buildup and the creation of competitors in case of any supply disruptions.

The main problem is, of course, the great wall of patents protecting certain chip architectures, making catchup in the materials, foundry and test/assembly fields much more likely than in design. However, even in design, Huawei has already begun to move all chip development in-house and other companies such as Lenovo and ZTE are likely to follow; this is all in addition to independent chip designers like.

Life sciences is even more dominated by the West than semiconductors, and since it supplies consumers directly, there is absolutely zero chance of catchup even with a major technological breakthrough due to media. In fact, semiconductors are the #1 potential field for catchup, especially foundry services and assembly/test, simply by volume of research papers coming out of China vs. the volume of research papers in life sciences. No technological breakthrough is required, merely parity.

Nice post.

Why do you say there is zero chance of catchup in life sciences due to media?

 

[FairAndUnbiased]

Nice post.

Why do you say there is zero chance of catchup in life sciences due to media?

"Do you really want to risk your children's health with low quality Chinese products?"

All you need to know.

Also there is no patent momentum, less papers are being published, etc. The exceptions are life sciences research outsourcing sector and bioinformatics, but that's because they don't deal directly with mass consumers and they aren't traditional life sciences that focuses on product development.

 

[Raphael]

This is a very interesting topic, but OP, I wish you linked to an album or something, because it's almost impossible to load all the images, even on my fast university connection, and it means that the page scrolls endlessly and I lose my place.

That's a lot of money, so it's clear they're serious. What's less clear is whether this is a good way to spend the money, given the dominance of the foreign semiconductor companies, the fact that many of the importers into China are subsidiaries of foreign manufacturers (and thus likely to continue to favor foreign semiconductor companies), and the length of time it will take to build a critical mass in this sector (likely at least a decade, if not two). These moves will further discourage foreign companies from conducting R&D in China for fear that the IP will be stolen and handed over to state-sponsored competitors. Oh well.

China would probably be better served by investing in green field areas of research, like nanotechnology, life sciences, and cybersecurity. However, given China's mercantilist nature and paranoia about foreign companies, it seems inevitable that China will try to seek autarky in all sectors, no matter how inefficient that is (it failed in the USSR, it failed in North Korea, and it will fail in China if China tries it).

That said, as a consumer, I welcome the increased competition and the potential pricing benefits.

We are not striving for "autarky in all sectors", but only in a few key sectors like energy, infrastructure, telecommunications, natural resources, high-technology (esp. with military application) - the kinds of industries that most governments around the world play a very heavy role in, yours included. Others are left to the market to decide.

For example, the luxury fashion and accessories market is dominated by high-end European and American firms (e.g. LMVH, Hermes, Chanel, Ralph Lauren, etc.) That's not to say domestic Chinese firms don't make these things (some are in fact very high quality), but they simply haven't been able to market and push their products effectively. And it's up to them to do so.

 

[tonyget]

This is a very interesting topic, but OP, I wish you linked to an album or something, because it's almost impossible to load all the images, even on my fast university connection, and it means that the page scrolls endlessly and I lose my place.

There is a PDF link in my post

 

[zeronet]

This is a very interesting topic, but OP, I wish you linked to an album or something, because it's almost impossible to load all the images, even on my fast university connection, and it means that the page scrolls endlessly and I lose my place

For example, the luxury fashion and accessories market is dominated by high-end European and American firms (e.g. LMVH, Hermes, Chanel, Ralph Lauren, etc.) That's not to say domestic Chinese firms don't make these things (some are in fact very high quality), but they simply haven't been able to market and push their products effectively. And it's up to them to do so.

you may not know most of those so called "high-end" brands are made in china, by Chinese outsource firms. the chinese firms currenly don't know how to trumpet their products for a stunning price, but they are fully capable to produce them

 

[zeronet]

"Do you really want to risk your children's health with low quality Chinese products?"

All you need to know.

Also there is no patent momentum, less papers are being published, etc. The exceptions are life sciences research outsourcing sector and bioinformatics, but that's because they don't deal directly with mass consumers and they aren't traditional life sciences that focuses on product development.

I basically agree with you that it is harder for the life science industry or more specifically medicine industry to catch up, but "zero chance" is an over underestimation. China now produces most of the basic elements of most commonly used medicine like penicillin, aspirin, and many others. That means their production fits the world's big-name companies' requirements. Moreover, there are many traditional Chinese medicine firms whose products only sold to chinese around the world, and only those 1.3 billion customer base alone can give the firms a good life. So the customer base may be the last issue they should consider as long as they have proven products.

Chinese law prohibits copying the medicine patents, although the patents are known to everybody. This is totally different from what Indians do, they pirate western companies' patents with only minor changes on the production procedures, and sell them to the world. Now American bans the imports of many low price low quality pirated medicine from India.

The real difficulties for Chinese firms come in the lack of funds that can sustain the R&D on new products, which easily goes to billions USD for a single product in west standard. But still there are lot of start-ups in China now working new medicine R&D.

Another issue that makes chinese government not dumping tons of money into medicine R&D is that there is no such problem like "medicine sanction" on china by the west, even if someday the west are crazy to do so, the chinese can withdraw those products' patent protection and all firms can produce them from the next day on.

 

[FairAndUnbiased]

I basically agree with you that it is harder for the life science industry or more specifically medicine industry to catch up, but "zero chance" is an over underestimation. China now produces most of the basic elements of most commonly used medicine like penicillin, aspirin, and many others. That means their production fits the world's big-name companies' requirements. Moreover, there are many traditional Chinese medicine firms whose products only sold to chinese around the world, and only those 1.3 billion customer base alone can give the firms a good life. So the customer base may be the last issue they should consider as long as they have proven products.

Chinese law prohibits copying the medicine patents, although the patents are known to everybody. This is totally different from what Indians do, they pirate western companies' patents with only minor changes on the production procedures, and sell them to the world. Now American bans the imports of many low price low quality pirated medicine from India.

The real difficulties for Chinese firms come in the lack of funds that can sustain the R&D on new products, which easily goes to billions USD for a single product in west standard. But still there are lot of start-ups in China now working new medicine R&D.

Another issue that makes chinese government not dumping tons of money into medicine R&D is that there is no such problem like "medicine sanction" on china by the west, even if someday the west are crazy to do so, the chinese can withdraw those products' patent protection and all firms can produce them from the next day on.

The active pharmaceutical ingredients in basic medicine has always been producable and has been producable since the 50's. Penicillin and asprin are the easiest; in fact some very sophisticated APIs have been produced. However that is not the point; a medicine is not just the API but rather an entire supply chain ranging from formulation/production/QA (the engineering side) to legal and advertisement. Did you know that Western companies have already tried patenting traditional Chinese medicines?

 

[Jlaw]

you may not know most of those so called "high-end" brands are made in china, by Chinese outsource firms. the chinese firms currenly don't know how to trumpet their products for a stunning price, but they are fully capable to produce them

well, it's just god damn handbags, nothing special. What we lack is marketing strategy. Look at Goldstar I mean LG. Their strategy to a point follow what Sony used to do. Provide an average product, make it look very nice, advertise the shit out of it and people will think it's high end stuff.

The active pharmaceutical ingredients in basic medicine has always been producable and has been producable since the 50's. Penicillin and asprin are the easiest; in fact some very sophisticated APIs have been produced. However that is not the point; a medicine is not just the API but rather an entire supply chain ranging from formulation/production/QA (the engineering side) to legal and advertisement. Did you know that Western companies have already tried patenting traditional Chinese medicines?

Yeah heard about that. That's our culture they're patenting. What are China going to do to counter it?

 

[tonyget]

well, it's just god damn handbags, nothing special. What we lack is marketing strategy. Look at Goldstar I mean LG. Their strategy to a point follow what Sony used to do. Provide an average product, make it look very nice, advertise the shit out of it and people will think it's high end stuff.

The luxury goods are highly profitable industry, Europeans are damn good at it

 

[Jlaw]

The luxury goods are highly profitable industry, Europeans are damn good at it

The luxury goods have huge markup. It's base on prestige because they pay celebrities and politicians to advertise their products. But really, i don't understand whats so special about a $20,000 hand bag besides to show off to people you don't know or give a shit about.

 

[Aepsilons]

The active pharmaceutical ingredients in basic medicine has always been producable and has been producable since the 50's. Penicillin and asprin are the easiest; in fact some very sophisticated APIs have been produced. However that is not the point; a medicine is not just the API but rather an entire supply chain ranging from formulation/production/QA (the engineering side) to legal and advertisement. Did you know that Western companies have already tried patenting traditional Chinese medicines?

Yeah heard about that. That's our culture they're patenting. What are China going to do to counter it?

Its not all necessarily just Chinese Oriental Medicine. The essential concepts of Indian Ayurvedic Medicine is also taken into consideration.

 

[tonyget]

The luxury goods have huge markup. It's base on prestige because they pay celebrities and politicians to advertise their products. But really, i don't understand whats so special about a $20,000 hand bag besides to show off to people you don't know or give a shit about.

That's why it's called "luxury goods"