Subscribe / Unsubscribe Enewsletters | Login | Register

Pencil Banner

China earmarks US$100 billion to gain a larger share of the global semiconductor market

Kareyst Lin | Aug. 25, 2016
Chinese manufacturers likely to partner existing firms due to high barriers to entry: Bain & Company

China intends to invest more than US$100 billion in the semiconductor industry, to play a larger role in the global market. Executives in the industry are actively considering how to both capitalise on and guard against China's growing ambitions.   

It is estimated that nearly 55 percent of the world's memory, logic and analog chips will flow to (or through) China by 2020, according to Bain & Company's report, China Chases Chip Leadership.

However, only 15 percent of these semiconductors will be produced by China. Though it was an increment from 10 percent a few years back, silicon is still the biggest gap in the country's trade deficits.

"China is making a run at capturing the semiconductor market globally by producing more of the microprocessors and memory chips that go into locally produced consumer devices and industrial equipment, both for domestic consumption and export," said Kevin Meehan, who leads Bain's Technology Practice in Asia-Pacific and co-authored the report.

China seeks to control demand as much as possible and gain access to critical intellectual property (IP)  to improve its competitive position. However, the factors that determine the leader of the semiconductor market are quality, technology, value and brand. This means that the government has limited control over end demand.

The entry barrier to the global semiconductor market is high, as market requirements such as foundational IP and ongoing innovation make it a difficult area to enter. In addition, incumbents have few incentives for sharing their core IP with potential competitors from China or elsewhere.

These difficulties suggest that China is likely to partner with existing firms.

"Global market share is not something that can be reliably captured through deep pockets and long patience," said Meehan. "To close the gap, China will need to work in tandem with established international players."

 

Sign up for CIO Asia eNewsletters.