China may be the heart of global gadget manufacturing but it’s a long way off from being the brains of the operation. Whether it’s PlayStations or iPhones, most of the semiconductors used in made-in-China electronics run on technology developed by US, British and Taiwan firms such as Qualcomm Inc, ARM Holdings and MediaTek Inc.
In fact, the US$165 billion in chips China imported in 2013 for computers, communications equipment and data-storage devices outstripped the US$120 billion it spent on oil imports.
But, Beijing aims to change all that. The China Securities Journal reported that the central government has put the finishing touches to an incentive package for the semiconductor industry and is on the brink of rolling it out.
Beijing is expected to spend some 500 billion yuan (US$82 billion) over the next decade to help targeted businesses expand production and upgrade their technology, with the ultimate goal of creating a series of players capable of taking on the best in the world. It would also help China ease long-held security concerns about dependence on chips from foreign companies.
To realize these goals, Beijing will have to aim the support at research and development of Chinese-designed chips, rather than just propping up assembly lines serving offshore companies. It might also need to be more open and let foreign firms work closely with local makers to get the industry to the next technological level.
The government’s determination to bring the chip market under local control can be seen in the nearly US$3 billion state-owned groups have spent in the last year buying Chinese mobile chip designers Spreadtrum Communications Inc. and RDA Microelectronics Inc. Both companies have technology that competes with Qualcomm, which Beijing is investigating over antitrust issues. Analysts say the investigation may be linked to royalties for the homegrown TD-LTE 4G technology, over which China wants full intellectual property rights.
One lead to follow could be Taiwan. It’s found its own niches in chip design to fight overseas dominance. Taiwan-listed MediaTek, for example, is a key player in the mainland’s affordable smartphone market, with more than half of its business coming from across the strait last year. According to tech research firm Gartner, MediaTek was the biggest vendor for smartphone chips in China in 2013, showing just how well it has tapped the low end of that market.
Will MediaTek’s next step be to team up with a local chip designer and take on the majors? It would be one way for the brains and the beating heart of electronics manufacturing to become one.
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