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'Made in China' chip drive falls far short of 70% self-sufficiency

16% produced domestically as equipment delays hamper push toward 2025 target

SiEn Integrated Circuits has thrown itself into China's campaign to attain semiconductor self-sufficiency. (Photo by Shunsuke Tabeta)

BEIJING -- The Chinese government's goal of meeting 70% of its semiconductor needs through domestic supply remains a long way off, private-sector research shows, with an estimated self-sufficiency rate of 16% last year despite an all-out government push to boost production.

In an event in Beijing late last month, SAIC Motor President Wang Xiaoqiu started off a conversation with Feng Xingya, his counterpart at Guangzhou Automobile Group, by asking how he was faring with buying chips that month.

Asking about the chip situation "has turned into a greeting," Wang remarked with a wry smile.

With the global semiconductor shortage showing no sign of abating, China's low domestic supply is causing headaches for the world's top auto-producing country. "The auto industry sources less than 5% of its semiconductor supply domestically," said Ye Shengji, deputy secretary general of the China Association of Automobile Manufacturers.

The U.S. strategy of targeting China's access to chips has made self-reliance a pressing issue for Beijing. The "Made in China 2025" initiative announced in 2015 has aimed to lift the country's chip production from less than 10% of demand at the time to 40% in 2020 and 70% in 2025.

The government has laid out a slew of measures to achieve one of President Xi Jinping's policy priorities, including stepping up investment by state-backed funds focused specifically on the industry.

The largest of these is the China Integrated Circuit Industry Investment Fund, dubbed the "Big Fund," set up in the fall of 2014 and tasked with supporting Made in China 2025. It raised 140 billion yuan ($22 billion) for its first fund, and set up a second, roughly 200 billion yuan fund in 2019 in response to tensions between Beijing and Washington.

The Big Fund has boosted the profile of NAND flash-memory maker Yangtze Memory Technologies. It has also invested heavily in material and equipment supply chains for Semiconductor Manufacturing International, or SMIC, helping to grow the company into a leading Chinese chip foundry.

The Semicon China trade fair in Shanghai: Increased chip imports and delays in U.S. authorization for shipping advanced chipmaking equipment contribute to China's low self-sufficiency levels.   © Reuters

The government also rolled out tax and other incentives for chipmakers last year. Investments in the field more than quadrupled in 2020 to 140 billion yuan, according to Chinese media. And 884.8 billion yuan -- about $137 billion -- worth of Chinese-made chips were sold last year, triple the 2014 figure.

Yet imports have swelled as well to keep up with rising demand across a range of fields, not least the auto industry as electric vehicles start to gain traction and autonomous-driving technology progresses. Purchases from overseas rose about 60% from 2014 to $350 billion in 2020.

China sourced only 16% of its semiconductors domestically last year, data from market research firm IC Insights shows. The figure is even lower, at 6%, after excluding foreign companies with facilities in China, such as Taiwan Semiconductor Manufacturing, Samsung Electronics and SK Hynix. While Chinese authorities put the domestic share of supply at around 30%, this is still short of last year's Made in China 2025 target.

Delays in shipments of chipmaking equipment have bogged down progress. "There have been delays in receiving approval for 28-nanometer and 14-nanometer equipment" from U.S. authorities, SMIC co-CEO Zhao Haijun told an earnings briefing in August.

This is not to say that China has abandoned its goal of becoming a semiconductor power. Promising enterprises across industries are pouring resources into the chip field, backed by government support.

Smartphone giant Xiaomi has invested in more than 20 semiconductor companies this year, according to Chinese media reports, including infusions from affiliated funds.

In the electric vehicle space, powerhouse BYD is expected to soon purchase a semiconductor company headquartered in Shandong Province. SAIC-GM-Wuling Automobile, the joint venture known for its $4,500 EV, has started to develop semiconductors in-house.

Academia is pitching in to train personnel as well. Xi's alma mater Tsinghua University converted a semiconductor course into a full department this April. Both Peking University and Huazhong University of Science and Technology established dedicated departments in July.

During a recent visit to SiEn Integrated Circuits, headquartered in the city of Qingdao, the first thing that came to view was a large sign emblazoned with this message: Establish China's semiconductors at full speed. The company is headed by Richard Chang, the founder and one-time chief of SMIC.

"Let's contribute to China's semiconductors," Chang said during a company event in August ahead of mass production.

Though the government looks to build a semiconductor supply chain that is immune to U.S. sanctions, some say that task will be easier said than done.

"Semiconductors are premised on global division of labor," said one expert. "No country can create its own independent supply chain."

In addition to excluding foreign-owned entities from the online space, Xi's administration has tightened its grip on society and ideology. A more inward-looking China would stymie the efforts of global semiconductor companies to cooperate. That in turn would paradoxically dim prospects for China to attain the high level of self-sufficiency it seeks.

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