China is pouring billions of dollars into integrated circuit and semiconductor production. Photo: iStock
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Step inside the sterile world of a Fab and you are literally at the epicenter of creation. It is here where semiconductors, such as microchips, are ‘born’ and integrated circuits come alive to power an array of products from smartphones to smart cars.

Known as fabrication plants, or Fabs for short, they are truly fabulous and without them, many of the high-tech solutions we take for granted in the 21st Century would simply cease to exist.

“The semiconductor industry is global with products rarely customized for specific regions,” Christopher Thomas, a partner in Beijing for McKinsey, the global management consultancy, said.

“There are no Taiwanese packages, South Korean memory chips, or Japanese industrial semiconductors – these products all serve a global clientele,” he added.

Included in the “clientele” list is China. The world’s second-largest economy has big ambitions when it comes to Fabs, a crucial component of President Xi Jinping’s “Made in China 2025” policy.

Turning the country into a technological superpower to rival the United States and Europe is at the core of his planned program.

Leading the way towards this “brave new world” are high-profile companies such as Alibaba, Baidu and Tencent, known as the BAT group, along with Huawei, Xiaomi and Didi Chuxing.

Another major player is Yangtze Memory Technologies, a name which fails to trip off the tongue, and is hardly known outside China.

Specializing in chip production, the group is based in Wuhan and was launched in 2016 after receiving US$24 billion of funding from the state-backed China Integrated Circuit Industry Investment Fund, Hubei province’s local government and Tsinghua Unigroup.

Increased investment

In the next few months, it will start production at one of three new Fabs in the country as part of Xi’s technological push.

“While several factories are set to kick off mass production this year, it’s unclear how well they can perform in terms of yield and quality,” Liu Kun, a vice-general manager of the IC Industry Research Center at CCID Consulting in Beijing, said.

Investment, in fact, is pouring into an industry which used to be dominated by the United States, South Korea, Taiwan, Japan and Europe. But that is changing rapidly.

A survey by SEMI, the global association for the sector, reported that China is expected to become the world’s second-largest investor in “semiconductor equipment this year” after ramping up Fab spending.

Last year, Beijing pumped $5.4 billion into the industry compared to $3.5 billion in 2016. During the next 12 months, this will jump to $8.6 billion, while the overall figure could hit more than $31 billion.

Obviously, the stakes are high as the chip business is worth $437 billion, Statista, an online statistical, market research and business intelligence portal, highlighted.

“As China embarks on the ‘Made in China 2025’ plan with electronics and semiconductor technology as one of the Top 10 focus areas, [its] semiconductor industry has an unprecedented growth opportunity,” Lung Chu, the president of SEMI China, said.

“However, besides the huge investment required, China’s IC industry is faced with strong competition in terms of technology, products, talent and supply chain access in an increasingly interconnected world and a highly global semiconductor market,” he continued.

“To be successful, it is critical that China’s semiconductor industry speeds up its integration into the global supply chain,” Lung added.

This might be easier said than done. Already a technological arms race has developed after China muscled into the sector.

At least “46 big-budget semiconductor projects” will be built in the country during the next three years, China Daily reported earlier this week, without mentioning the cost of what can only be described as a mega construction program.

Indeed, Beijing is desperate to wean its high-tech industries off imported state-of-the-art chips and fulfill the “Made in China” vision.

“Though it will take time for us to catch up with leading foreign countries, a consistent input of resources and R&D will help accelerate the process,” Li Guojie, an academic at the Chinese Academy of Engineering, said.

The scale of the task is immense. Last year, Samsung rolled out the world’s largest semiconductor Fab at the Godeok Industrial Complex in Pyeongtaek, which is part of Gyeonggi Province.

Costing a reported $14 billion, it took two years to complete and covers an area of 2.89 square kilometers, or roughly 400 football, or soccer, fields.

“The new fabrication plant constitutes an important part of our vision to establish a globally balanced semiconductor fabrication network that further solidifies our strong global presence,” Jim Elliott, the corporate vice-president of Samsung Semiconductor, told EE Times, which caters for the electronics fraternity.

“The plant will play a key role in our future business initiatives, as we continue to invest in areas that contribute towards our industry leadership,” he added.

As yet, China does not have an answer to this massive operation. But it is working on it in tandem with companies such as BOE Technology Group, which is based in Beijing’s Zhongguancun tech park, a sprawling hive of research and development to rival Silicon Valley.

50,000 staff

The group employs nearly 50,000 staff and specializes in display technology, and R&D, with annual revenue hovering near the $8 billion mark.

Last week, it opened its third Fab in Hefei, the capital of Anhui Province.

“The search for Chinese champions is something of a misnomer; it would be more appropriate to say that domestic companies should aim to become global champions with roots in China,” Thomas, a partner in Beijing for McKinsey, said.

Still, going “global” has become a ‘redline’ issue with the United States and President Donald Trump’s administration.

State-sponsored subsidies to China’s tech sector were a major stumbling block during trade talks between Washington and Beijing last week with the White House’s demand to curtail the program striking at the very heart of the “Made in China 2025” policy.

Tensions had increased earlier in the month after telecom giant ZTE was banned from using US components, including semiconductors, for seven years after violating export sanctions to Iran and North Korea.

For Xi’s administration, this was a wake-up call which will only increase the speed of investment in a range of technology industries.

“Local governments have shown great enthusiasm for supporting the semiconductor industry and there has been a slew of policy support for related investment,” Liu at CCID Consulting said.

In the rarified atmosphere of Fabs, the temperature has just gone up a notch or two with the heat drifting through the corridors of power in Washington, Seoul, Taipei and Tokyo.

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