China has been developing modern semiconductor technology for more than 30 years, with its state capital support to the industry greater than those once provided by Japan, South Korea and Taiwan during the development phases of their chip industries.
Chinese financial support and policy incentives are still in progress and even strengthening. However, quite different from its panel industry, China's semiconductor sector has not achieved the expected development results. The main reason is that the semiconductor industry is more complex in technology and business natures, but what I'd like to discuss here is the possible impact of China's developmental system on the development effectiveness of its semiconductor industry. There are some factors to be considered here.
The first factor affecting China's semiconductor development is that its state-owned capital did not withdraw after playing a major role in backing the early development stage of semiconductor companies. Instead, state capital retains a dominant position in the companies even as they began to raise capital from the open market. As a result, profit-oriented social capital fails to get semiconductor businesses through the natural selection process of the market to form a perfectly competitive environment.
This factor has been clearly sensed by the government, as it has newly set a ceiling on state funding in new semiconductor R&D projects. This will probably eliminate part of the negative effects seen in the past, but state funds will continue to be injected into the projects amid geopolitical interventions.
At present, general public investors in China still regard semiconductor as an extremely high-risk industry, and it seems that only microelectronics-related large enterprise, such as those engaged in the sectors of automobiles, mobile phones and home appliances, are suitable for investing in new semiconductor projects, as they have sufficient funds and are pursuing the benefits of vertical integration of semiconductor components and system products.
However, such an investment model has long been trialed in various countries in the last century, and proven to be an expedient measure likely with side effects, since the possible conflicts of interest between foundries and their clients are not conducive to the growth of fab economies of scale, and the management model of corporate investors themselves may not be suitable for foundry management.
The second factor concerns the appointment of persons in charge of semiconductor companies, which is closely related to the first factor.
Since state capital plays a controlling role in semiconductor firms, it also appoints the administrators of semiconductor companies. In the past, most such administrators had expertise in administration, management and finance, but in the high-tech industries, particularly semiconductor, an administrator with technological background and industrial experience is absolutely critical for the success of a semiconductor company, as only such a person can make competitive long-term planning and important judgments.
The third factor relates to human resources allocation.
There is still a huge gap between the population employed in Chinese chip industry and the labor demand, with the shortfall estimated at over 200,000 people. But judging from the supply side of the education system, this is not a major problem. There are now around 200,000 university graduates majoring in microelectronics in China per year, so the gap is not difficult to fill. The real problem to be solved is their willingness to take jobs.
Under the current economic environment in China, many industries previously offering higher pays than the semiconductor sector, including finance, banking, Internet, and real estate, will likely see their salaries gradually surpassed by those in the semiconductor industry. However, the vocational development process and allocation of the employees is a controversial issue in China.
Microelectronics officially became a basic department classification at Chinese universities as late as 2021. The majority of China's semiconductor employees are specialized in microelectronics and a small portion in physics. This is starkly different from far broader professional configurations in other countries - including electrical engineering, chemical engineering, machinery, materials, physics, chemistry and information engineering.
As the semiconductor industry, in its constant pursuit of value addition, shifts from simple process miniaturization to more diversified means of process miniaturization, advanced packaging, innovative materials and even a little bit of life science, an over-concentration of human resources in microelectronics is obviously not conducive to the longer-term development of China's semiconductor industry.
Moreover, 80% of new semiconductor employees in 2022 have a bachelor's degree, with a relatively lower ratio of master and doctorate students. This is incompatible with the trait of the high-tech industry -- creating new economic value through constant research and development.
The last factor refers to the industrial economies of scale.
High-tech industries require continuous R&D investment to maintain profitability and competitiveness, and the funds supporting constant R&D activities are naturally sourced from operating profits. In order to generate sufficient independent R&D funding, a company's revenues should command a significant proportion of its sub-sector, which is roughly 15% of the global market.
Strictly speaking, no advanced wafer fabs in China have entered a stable and virtuous cycle, though China's top foundry SMIC and memory maker YMTC have seen their global market shares coming closest to the previously mentioned percentage. As it seems, this marcro perspective has lately entered the mindset of Chinese industrial adjustment, and several companies lacking economies of scale have been examining the the possibility of mergers.
As of October 2022, China's semiconductor self-sufficiency rate reached only 16.7%. The country has a substantial advantage in basic scientific research on semiconductor, and therefore reviewing the past development pattern and adjusting the future development direction may be one of the effective means to be adopted in the new development stage of China's semiconductor industry.
(Editor's note: Albert Lin received his Ph.D. in Physics in 1988, taught at National Central University, and then move to the technology industry. Lin used to serve as director and vice president of ProMOS Technologies, and president of ConDel International Technologies. He was an advisory member of Taiwan Semicon, chaired the Lithography Forum, and was chairman of the Supervisory Board of Taiwan Semiconductor Industry Association. Now, Lin is visiting research fellow in the Department of Physics, at National Taiwan University. His main research fields are new materials, new mechanisms, and basic research on quantum information. He is the standing supervisor of the Taiwan Association of Quantum Computing and Information Technology.)
