China’s IC Failure

Despite 20-odd years of trying to grow a domestic IC industry, China’s IC trade deficit gets worse and worse.

In 2000, the deficit was under $10 billion. In 2010 it was over $100 billion, according to China’s Ministry of Industry and Information Technology.

 

That’s a stupendous figure when you take into account that the entire world market for ICs is only $310 billion.

 

iSuppli reckons that half the world’s production of ICs go to China to be assembled into systems products.

 

So that means China imported $150 billion worth of ICs last year.

 

And China only manufactured $21.6 billion of ICs last year says the Ministry.

 

So the deficit was nearer $130 billion.

 

The Ministry says that the lack of innovation is a threat to national security and the industry’s sustained development.

 

Consequently the Ministry will invest more money in the IC industry.

 

Of course the stock Western response to this is that money won’t deliver innovation.

 

Innovation comes from free-thinking people with disruptive ideas, is the stock Western view.

 

And freethinking disruptive ideas men are not the sort of people encouraged by a Communist dictatorship which – whatever its capitalistic business practices – China still is politically.

 

Now China has loads of design houses – and successful design houses elsewhere can transition to the fabless model and grow into significant companies. But that hasn’t happened in China.

 

Although Chinese engineers have contributed hugely to the success of Silicon Valley companies.

 

I

t’s not just China’s failure. Japan has seen hardly any IC start-up activity. Nor has Korea.

Taiwan is the only Asian country which has grown significant IC companies from scratch.

 

And the Taiwanese have developed a free-thinking society.

 

So maybe there’s something in the Western belief that innovation requires a free people.

Tags: world market

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5 Comments

  1. David Manners
    January 25, 2011 17:57

    Yes indeed, Pete, and IMHO that power derives from the superiority of western universities. It is difficult to see how China will improve its universities to the best western standards without allowing freedom of thought and expression and without opening up higher education to a much wider proportion of their population than they now do. I understand the student entrance system is more likely to be based on your connections with The Party than on your brains. That will slow things up too. Japan also needs to change it’s attitude that free-thinkers and contrarian-thinkers are anti-social.

  2. David Manners
    January 25, 2011 16:39

    Thank you Sadasivam, I have corrected it

  3. Sadasivam Dhinakaran
    January 25, 2011 16:17

    Interesting article!
    There is a typo between million and billion.

  4. Peter Claydon
    January 25, 2011 12:07

    I think that this power of free thinking is the only thing that will save the west from economic collapse.

  5. Mike Bryant
    January 21, 2011 07:49

    Or maybe the “freethinking disruptive ideas men” (and in China’s case definitely women as well) understand that whilst ICs are an essential brick in the value triangle there are higher profits to be had in the upper levels actually using those ICs to make products.
    There are actually many innovative Chinese designed and made products now appearing on their internal market. I came across an interesting case the other day where rip-off copies of a Chinese company’s product were appearing on the market. Perhaps that will get China to tighten its IP enforcement laws. Nothing quite like executing a few pirates to solve the problem.

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