The chip industry in China is facing a dilemma. While the nation currently consumes about half the world’s roughly US $350 billion in chips,[1] fabs in China only account for 2.5% of worldwide IC revenue. Chips are China’s biggest import, surpassing even oil.

China’s chip industry is still posting double-digit growth, so the country’s leaders have decided to seize the moment and set their country on course to become a chip manufacturing powerhouse. They’ve tried to boost domestic manufacturing before, but with limited success. This time they have again set ambitious goals and offered up significant seed money, but it’s now up to the marketplace to make it happen. And the marketplace is responding with gusto.

According to SEMI estimates in January 2015, total Chinese government (central plus local) funding will reach US $100 billion over the next 5 to 10 years, while McKinsey & Co., in August 2014, suggested that national and provincial funds combined could reach US $170 billion over the same time period. Officially called the National Industry Investment Fund, it’s prompting the creation of a host of new VC funds and matching investments, and the bolstering of existing funds.

Which is why everybody is calling it the best time the industry’s ever seen. In his talk to a packed hall at Semicon China 2015, Handel Jones, China expert and CEO of IBS, called it a once-in-a-lifetime opportunity.

THE GUIDELINES

In June 2014, the Chinese State Council issued the National Program to Promote the IC Industry Development, which provides the guidelines that industry is expected to use.

The guidelines begin by identifying the problems that impeded past efforts. Primary among those are financial bottlenecks, risk aversion, a shortage of key talent, general fragmentation, and holes in the supply chain.

The development goals outlined are as follows:

• For 2015, the guidelines call for the establishment of platforms for financing and policy; moving 32/28nm to volume across the spectrum of production, packaging and test; and investment in additional equipment for 65/45nm, world-class design, advanced technologies and 300mm wafers.
• By 2020, the technology gap should be narrowed, 20% CAGR should be sustained, and 16/14nm should be in production.
• By 2030, China should have tier 1 IC companies.

It is important to note that economic prowess is not the only driving force here. In the wake of recent security scandals, the program also notes that China needs a strong domestic chip industry to ensure security.

A task force was created, including members from key ministries in IT, science and technology, finance, and national development. But to ensure that the policy implementation is market-driven and focused, the task force also includes about a dozen industry leaders.

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