A crisis looms over China’s chip sector

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This article is an adapted translation of the original story on Leiphone, a Chinese publication focusing on the mobile internet and smart hardware.

Chinese telecom giant ZTE’s business came to a grinding halt when it was banned by the US from buying American-made chips.

While the US government later bailed out the company, ZTE is paying a heavy price in exchange for the sanction relief – including the shakeup of its management team within 30 days and as a US$1 billion fine.

Beyond that, the ZTE saga reveals the crisis looming over the Chinese semiconductor industry. This month, insiders gathered at a seminar in Beijing to discuss the challenges facing the sector. Leiphone was there to bring you the insights.

Wang Dongsheng, a professor at Tsinghua University’s Department of Computer Science and Technology, attributed ZTE’s woes to inadequate “core technology” and weak innovation. He compared China’s semiconductor sector to the country’s football team, which is often mocked for its incompetence.

Chinese companies, he said, lag far behind their international counterparts, and China does not have much say in the global semiconductor industry.

China accounts for more than 50 percent of the global demand for chips. However, only eight percent of the chips used in the country are made there, according to Chinese newspaper Yicai. In 2016, China imported US$227 billion worth of semiconductors, almost double that year’s imports crude oil, which is the second-largest category.

The overreliance on importing semiconductors has laid bare the country’s lack of core technologies as well as its weak chip manufacturing.

Is government support the answer?

To bolster the industry, the government might need to step in with more policies. In addition, it could increase the income of researchers and set up industrial funds. As for companies, technological breakthroughs are key, which could be achieved by strengthening research and development at universities and institutions.

But some insiders warned that state support won’t solve all problems. Han Yinhe, a researcher with the Institute of Computing Technology at the Chinese Academy of Sciences, said at the seminar that some Chinese chip companies are parasitic in that they are too dependent on the state. That has put a strain on limited resources, Han argued, saying that the phenomenon has fanned “chaotic” competition.

Still, many seminar attendees echoed the call for more robust policy support. Wang Shijiang, vice secretary-general of the China Semiconductor Association, said that consistency and continuity of policies will be important. Wang also noted that previous initiatives were primarily geared toward chip manufacturing, while more attention should be paid to the equipment and materials side of things.

Many experts said that China can also look to other countries and regions for answers.

Taiwan, for one.

China’s slow start

What about technology transfer?