China: Potential to Be the World's Largest Chip Market

Despite the fact that the average per capita income in China is only $800/year, the country is on track to become the world's largest consumer of semiconductors in the next 10 years, perhaps by 2010.

According to research from Converge Inc. (Peabody, Mass.), China's semiconductor market is forecast to grow from $13B in 2001 to $34B by 2005. Even in 2001, when the rest of the world's chip demand decreased, China's market grew 18.3%. Its semiconductor industry will account for 9% of worldwide sales in 2001, increasing to 12.2% by 2005.

China enjoys the world's largest economy with a GDP of $4.5T in 2000, representing 10.3% of the worldwide GDP. As of 2000, China had a population of 1.2 billion. Although much of this population is rural and near poverty, the country's urban population was 380 million — more than the United States. Because of the low cost of living in China, these urban dwellers have disposable incomes comparable to other industrialized countries — and they have decades of pent-up demand for consumer products.

Grant Johnson, manager of information services at Converge, reports that China is forecast to have 70 million computer owners by 2005, up from 19 million today. There will also be significant demand from the telecom sector.

China's recent entry into the World Trade Organization (WTO) should have a positive impact on China's economy and also make it easier for non-Chinese companies to more effectively compete there.

Presently, domestic production in 28 wafer production lines in China satisfies only ~10% of IC demand. Eleven large companies are responsible for most of the IC production in China, including several new 200 mm foundries (ASMC, Grace and SMIC) based on models similar to TSMC and UMC in Taiwan. In addition to the "Big 11," there are >30 chip companies with wafer fabs. However, most of these lines are very small and generally only produce several thousand wafers/month on 100 or 75 mm lines, Johnson said. These 11 companies include Advanced Semiconductor Manufacturing Corp. of Shanghai (ASMC), China Huajing Electronics Group Corp., Hua Yue Microelectronics Co., Motorola Tianjin fab (MOS17), Semiconductor Manufacturing International Corp. (SMIC), Shanghai Belling Corp., Shanghai Hua Hong NEC Electronics Co. (HHNEC), Shougang NEC Electronic Co. (SGNEC), Wuxi Huajing Microelectronics Co., Wuxi CSMC-HJ Co. (CSMC-HJ), and Zhuhai Nanke IC Co.

It is worth noting that there is a restriction on the level of wafer processing technology that China can employ because of the Wassenaar Arrangement, which regulates the export of products that could be used to enhance the military capabilities of another country. China is one of the countries targeted by the guidelines, which require that export licenses be issued for sub-0.30 µm technology. However, China is poised to begin 0.18 µm production. HHNEC, for example, is negotiating for the release of 0.18 µm tools with the Japanese government.

Perhaps the best example of China's new semiconductor capabilities is the foundry SMIC, which is producing 200 mm wafers using 0.25 µm processes. The company expects to be producing 25,000 wafers/month by the end of 2002, move to 0.18 µm in 2002 and reach its capacity of 50,000 wafers/month in 2003 or 2004. Products will range from DRAMs to high-speed and low-power logic ICs, and eventually mixed-signal rf CMOS and SiGe BCMOS processes.

For a good overview of the fabs in China, see "Major Chinese Fabs" (Semiconductor International, September 2000). A new report from Converge, "Chinese Electronics Market Forecast" is also available. For information, contact Johnson at 1-978-538-8591 or grant.johnson@converge.com.

An interview with Yu Zhongyu, president of the China Semiconductor Industry Association, can be found on our Web site.