The ongoing transformation of the Chinese semiconductor sector requires all parties to raise their game.
Business in China has become a top-of-mind issue for semiconductor executives and investors over the past year. While traditionally an important consumption market for chips, three related factors have now made it more important for companies to understand the opportunity and proactively refresh their China strategies. First, the government is actively attempting to reshape the domestic semiconductor market and assist local companies in becoming national champions. Second, Chinese consumers and companies are becoming increasingly important to the growth of the global semiconductor market. Third, Chinese capital—from both government and private sources—is actively pursuing merger, acquisition, investment, and partnership opportunities worldwide.
These changes raise important questions for Chinese and multinational companies. How can they continue to capture growth in China? Do market and policy changes require new capabilities or approaches? And how can local and international players form mutually beneficial partnerships?
The factors behind China’s increasing prominence
It’s worth examining in detail the political, economic, and financial-market factors behind China’s growing role in the global semiconductor industry, as they may shape the market for years to come.
A supportive government
Sidebar
China’s national guidelines for the development and promotion of the IC industry
In June 2014, the State Council of China released the National Guidelines for Development and Promotion of the Integrated Circuit (IC) Industry, its long-awaited policy for improving the country’s semiconductor sector (see sidebar, “China’s national guidelines for the development and promotion of the IC industry”). The new guidelines lay out ambitious targets for industry revenues, production volume, and technological advances. While they do not represent the Chinese government’s first attempt to support the indigenous semiconductor industry, they differ from previous policies in three important ways:
The government’s investment is 40 times higher than previous targets, with a five-year investment target of about $19 billion. Overall, the government hopes that the industry will receive about $100 billion to $150 billion from all sources, including state-owned enterprises and other investors.
There is a greater focus on creating segment winners, or national champions, through M&A and other consolidating moves.