SAN JOSE – Massive government spending will drive significant growth in China’s semiconductor industry to 2020, according to a just released report.
 
China’s central and local governments have announced investments totaling up to $50 billion toward semiconductor-related projects, says SEMI.
 
China is the world’s leading market for IC consumption, accounting for approximately 28%. Increasingly, this demand will be met with China-produced chips, including leading-edge ICs produced in 300-mm fabs, says SEMI.
 
Meanwhile, equipment and materials suppliers that can leverage current China industry relationships and expand contacts to the next-generation buyers will prosper, the trade group says.
 
In the past five years, China’s government influenced the investment of about $7 billion in new fabs. That figure could triple, as another $20 billion to $25 billion will be invested by local governments throughout the country. Going forward, the central government will invest up to $30 billion in the industry by 2020, according to SEMI.
 
The switch in investment strategy marks a new phase of industry development in China. Up until 2005, China’s focus was foundries, with fabs from SMIC, Grace, Huanhong, TSMC and Hejian driven by private sector investments and supported by government tax incentives. In 2005 to 2006, the government used incentives to aid international integrated device makers such as Intel and Hynix.
 
The current phase business model is government-owned “virtual” IDMs. Many of these projects are based on three pillars: investment from government or state-owned entities, fab operation expertise from established companies such as SMIC or other experienced team, and a marketing/product partner such as Elpida. This business model underscores the growing role of China-based investment and the continued importance of China as a global center of semiconductor manufacturing, according to SEMI.
 
Unlike recent years, China fab equipment and materials purchasing decisions are more often made at the local level and not through corporate contracts originating from Japan, Taiwan or the US. With local, regional and national government funding involved in the building and equipping of new fabs, the purchasing process in China has taken a unique Chinese character. In addition to technical evaluations, request for proposals and request for quotes, multi-discipline delegations and committees are formed that include local government officials and universities. Government plays a critical role in the decision-making process.
 
As the China semiconductor industry grows with the infusion of government, international IDM and foundry, and China-investor investments, the market is also diversifying with increasing 300-mm equipment, a massive assembly and test infrastructure, and rapidly expanding related industries in flat panel displays and solar. Increasingly, these industries are becoming interrelated where university, government, investor and supplier relationships extend across multiple supply chains.
 
Not only has China become the world’s IC consumer, fab materials spending in China will reach $1.5 billion by 2010, with the highest growth rate among all the key microelectronic markets in the world. In addition, with recent 300-mm fab announcements by SMIC, Hynix, Promos and others, and recent changes in the Taiwan government, greater technology spending is anticipated.
 
Along with wafer processing, China’s test and assembly market, including internal IDM assembly and test operations, continues to be world’s fastest growing. More than 45 assembly and test plants are currently operating in China, most centered in Suzhou, Wuxi and Shanghai. Further expansion of the Chinese assembly and test industry is occurring in western China with new plants opening in Xi’an and Chengdu. iSuppli found there are more than 550 fabless semiconductor companies in China that help drive capacity in these plants.
 
China is also experiencing rapid expansion of the display and solar industries. LCD TV sales in China have grown from 3.9 million units in 2006 to an estimated 12.6 million units this year. By 2012, LCD TV sales are forecasted to grow to more than 33 million units. To meet this demand and export market, Generation 6 plants have been announced by BOE-Hiefei, Irico and SVA. A Gen 7.45 plant has also been announced by InfoVision Optronics (Kunshan) Co. Ltd. (IVO). IVO has also announced an expanded cooperation agreement with AUO of Taiwan. Most recently, BOE-Beijing has announced a preliminary plan for a Generation 8 plant.
 
Since 2004, China has been moving toward a huge solar production ramp on all fronts of the domestic supply chain: polysilicon feedstock, wafers, cells and modules. China’s solar cell production and capacity have reached growth rates from 100% to 400%. In the last two years, China’s 10 IPOs have raised nearly $2 billion to meet the world’s growing demand for PV-related products and services. With these highly prominent initial public offerings, China’s solar energy industry is poised to make a major impact on worldwide polysilicon capacity and solar cell production, says SEMI.
 
In 2008, China has become the No. 1 PV producer in the world. However, China’s domestic market for PV installation is quite small. About 98% of its production is shipped overseas. By the end of 2007, China’s accumulative installation was only 100MW, less than 1% of the worldwide installation.
 
Even though China’s government has enacted a number of national renewable energy policies, less emphasis has been put on solar energy. SEMI has joined forces with China’s leading PV companies and formed the SEMI China PV Committee. The committee has recently initiated a PV industry advocacy program to collectively address issues facing China’s PV industry and to petition for more government support in the areas of legislation, policy and financial support, with the aim of stimulating domestic demand while overseas market weakens.
 
In addition to polysilicon, solar grade wafers and solar cells and modules, China will also benefit from an emerging domestic equipment industry representing the entire production process, including thermal process, plasma etch, wet bench, PECVD and semi-automated screen printing.
 
Supporting equipment and component vendors are also expected to emerge in China. The business model for many of these new solar energy firms, such as Suntech, Yingli and Jing’ao, follow a vertically integrated path. Some companies, such as LDK or CSUN, however, specialize in a limited number of steps in the supply chain.
 
Recently, Chinese PV product manufacturers have increased their focus on thin-film silicon PV modules, a sub-area attracting significant interest.
 
The global PV industry is certain to grow during the next several years. Regardless of the ultimate scope and nature of the future industry, China’s role in the global industry will certainly grow, and like most industrial segments in China, achieve global impact, according to SEMI.

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