China aims to create a $327 billion domestic semiconductor sector by 2023

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China semiconductor firms need US designs to thrive

The Chinese government recently unveiled plans to help its domestic semiconductor sector reach $327 billion in value by 2023. Beijing intends to cultivate growth in its local electronic component ecosystem through financial and regulatory support.

Officials want to bolster the country’s output of parts used in the manufacture of smartphones, electric vehicles, 5G networks, and connected factories.

Last September, China indicated it would significantly increase its regional microchip ecosystem investments to lower its reliance on imported products.

Beijing’s Three-Year Domestic Semiconductor Sector Improvement Initiative

Beijing has actively strived to become a global leader in the semiconductor field since 2014. However, the U.S.-China trade war that began in 2018 has stymied its efforts by denying the country access to advanced component technologies. The nation’s new initiative looks to advance its seven-year-old roadmap using a new strategy.

First, China’s Ministry of Industry and Information Technology (MIIT) intends to support providers’ efforts to establish new factories financially. The organization stated capital will be distributed to various regional investment funds to localize the initiative. It also plans to assist local chipmakers in building out their infrastructure by granting construction permits and helping them conform to international technology standards.

The Chinese government intends to see greater domestic production of semiconductors, magnets, fiber-optic equipment, software, and sensors.

The MIIT will also promote the development of new large component corporations by encouraging industry mergers. The agency ultimately wishes to develop 15 globally competitive firms that generate at least $1.54 billion in annual revenue.

Second, Beijing wants to foster an environment of greater multinational cooperation. In particular, it hopes to convince leading chip vendors from Europe, Japan, South Korea, and other counties to build new foundries and labs in-country.

China’s Near-Term Chip Strategy

While the Chinese government works to expand its indigenous semiconductor industry in the long-term, its public sector is looking to improve its technological sophistication with a less ambitious near-term strategy. Namely, its corporate champions are stockpiling equipment and components to achieve its goals.

Last year, the country’s businesses spent $32 billion on computer part manufacturing tools from Japan, South Korea, and Taiwan. That represents a 20 percent increase in the capital expenditures the region’s companies made in 2019. Similarly, its overseas chip purchases almost reached $380 billion last year, up 26.6 percent annually.

China’s leading tech firms ramped up their financial outlays in 2020 in response to U.S. trade policy changes.

Many fundamental chip design and manufacturing methodologies come from the United States. That means America can impose heavy penalties on providers that offer certain products and services to blacklisted vendors.

Washington also issued new mandates limiting exports to Huawei and Semiconductor Manufacturing International Corporation (SMIC), China’s largest tech company and chipmaker, respectively. In response, the two firms significantly increased their overseas procurement activities ahead of the new restrictions coming into effect.

Recently, the Biden administration announced plans to review America’s trade policies, an action that might result in an easing of export controls. That could lead to Chinese businesses intensifying their purchases of foreign components to meet their needs. Even if international tensions are not relaxed, Beijing will continue pursuing its vision of a self-reliant domestic semiconductor ecosystem.

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