China Sees LSI/LCD Industry Growing Rapidly
April 2, 2001 (TOKYO) -- China has begun accelerating the move to expand its burgeoning LSI/LCD industry, betting the future that the industry will become a core of the economy, with government, industry and academics headed toward developing it.
Although it is hard to see the global map of the LSI/LCD industry changing dramatically in a year or two, many industry observers believe that foreign LSI/LCD manufacturers will shift their production base to China in 5-10 years.
Given that China has abundant management resources, such as human resources, technology and capital, the potential to become a global center of LSI/LCD production is high.
A persisting concern over human resources, broadly held by high-tech companies around the world, will be easily solved with the rich source of university and college students in China, which has the world's largest population.
The flow of high technology in China from advanced countries is contributing to raising the potential of Chinese technicians. Moreover, China can compete with foreign countries on production cost thanks to its cheaper labor and land prices. Cashing in on these strong points, China is now attempting to shift its focus to the LSI industry first and then the LCD industry.
Industrial Development Zones in Rise
"It seems as if China has 10 pieces of 'Hsinshu Science-based Industrial Park,' Taiwan's largest industrial park, which contributed to boosting Taiwan's economy," an industry watcher said, referring to the Chinese industrial development zones that are being constructed in many parts of the country.
In those industrial parks, a variety of industrial infrastructures, such as water, electricity and roads, are provided by the country or the city, and companies and universities are called to form the whole city. There is an incentive for the companies residing in the zones, a 100 percent corporate tax relief in the first 5 years of their operations and a 50 percent cutback in the following 5 years. (Chart 1)
Currently, such zones exist in Beijing, Shanghai, Suzhou, Ningbo and other cities. And the Chinese government is now planning to spread the construction of such zones to western parts of the country, alongside the Chang Jiang River. (see Chart 1)
More LSI/LCD Firms Created at Industrial Development Zones
In those zones, especially in Beijing and Shanghai, there are a greater number of hot rising companies that have recently begun operations to design, manufacture and assemble LSI and LCD products. They are owned by either the central government, private Chinese firms, foreign capital companies or joint ventures, and of them the most aggressive investors are foreign companies. Indeed, the Chinese government said about a half of total investment comes from foreign companies.
According to the government, there are 25 major LSI-related companies specializing in designing, eight in pre-treatment and more than 10 in tail-end processing. The total LSI output was some 15 billion yuan in 2000, and the combined output of diodes and transistors came to about 2 billion yuan. It foresees diodes and transistors to show a 30 percent annual growth over the next 5 years on strong demand for computers and mobile communications devices. (1 yuan = US$0.12)
Regarding LCD products, China already is known as a center of global production for twisted nematic or super-twisted nematic LCDs, amid brisk demand from watch makers.
Municipal Governments Luring Investors with Incentives
Chinese city governments are being exposed to strengthened competition on incentives to lure companies to invest in their industrial parks.
In China, the central government provides fundamental incentives for companies, and local governments offer unique incentives. As the health of local governments is affected largely by the degree of their industrial development, their spirit of competitiveness is very high. In particular, competition between Shanghai, the country's largest industrial city, and Beijing, the center of politics, is so severe that other cities are spurred to improve their investment incentives.
The central government-led initiatives, which are stipulated in the No. 18 file released in June 2000 by China's State Council, consist of three sections aimed at supporting the LSI and software industries.
The first section is that tariffs on imported equipment, such as LSI manufacturing devices, are 100 percent exempted. The second section is that corporate income tax is also 100 percent exempted in the first 5 years of operations, and the tax rate is reduced to 7.5 percent, or a half of the normal amount, in the following 5 years. The third section is that the rate for the value-added tax on intellectual assets is cut back to 6 percent for LSI producers from the normal 17 percent and to 3 percent for software developers.
Beijing is the first city to have its investment initiatives plan approved by the national government. Under the North Microelectronics Industry Base Plan announced in October 2000, the Beijing city government offers a free supply of electricity and land to companies over the next 30 years, subsidizes companies with 15 percent of the total investment and pays some part of the interest on loans for construction.
Universities Help Foster Entrepreneurs
Universities in China are striving to foster entrepreneurs. An excellent example is Tsinghua University in Beijing, where professors are almost obliged to start up a venture business, said a university official. Similar to Stanford University in the United States, known for creating the notable Silicon Valley, professors are required to move into the real business world, rather than staying and pursuing knowledge as a scholar.
Now, the most popular subjects at universities in China are electronics engineering and computer science and technology. Some Japanese LSI company officials said the popularity of electronics engineering is so high that even Japanese people cannot imagine it.
China is Rich in Management Resources
There is a high possibility that China will see its LSI/LCD industry grow rapidly in the near future, considering the current strength in terms of human resources, technology and money. On the front of human resources, extremely talented students are flocking to universities across the country, although the percentage of university students to total population is as low as 4 percent. In addition, an increasing number of Chinese students studying abroad, especially in the United States, Japan, Singapore and other LSI/LCD technology advanced countries, are returning to China, and those back from the United States have the highest potential. This indicates China can easily secure talented students at home and abroad.
Meanwhile, imported high technology is taking hold steadily as a result of the Chinese government's persistent effort to invite foreign manufacturers to invest in China. Although there is a view that it will take more than 10 years before China can construct an LSI factory by itself, nobody cannot deny that Chinese engineers are absorbing advanced technologies at an incredible speed.
And China has an upper hand in terms of manufacturing cost, compared with any other Asian countries. Production cost in Shanghai is cheaper than that in Hsinshu in Taiwan. (see chart below, "How costs are lower in China than in Taiwan")
The Chinese government has already solved problems that had long blocked foreign companies from investing in China by tempering tariffs on imported facilities, value-added-tax and corporate income tax substantially in its investment incentives package. On top of that, local governments are moving to subsidize companies with 15 percent of the total investment, and foreign companies can procure funds necessary to make direct investment in China through the local stock markets.
Chart :
Chart is provided by Nikkei Microdevices.
(Masahide Kimura, Staff Editor, Nikkei Microdevices) |
