Issue



Let's keep a wary eye on China


09/01/2003







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In recent times, the semiconductor process tool industry has viewed China as the one shining light in a very gloomy market. Limitations on advanced tools for China appear to be rapidly being relaxed or ignored while new foundries and fabs there gear up to compete in the world semiconductor market. In the US, vendors complained that the licensing procedures for sending equipment to China were too cumbersome and unfair to the US because toolmakers in Europe and the rest of Asia seemed less restricted. Rather than debating the wisdom of bringing China up to parity in advanced chipmaking, the discussion at industry meetings has been more about how the burgeoning capabilities of foundries and fabs in China might depress average selling prices for chips over the next few years, slowing the growth of the semiconductor industry elsewhere.

There are a number of reasons that more caution might be warranted. While a leadership transition is in progress in China, the direction that might be taken by the new leadership is not yet clear. Recent studies of the Chinese military buildup suggest that an eventual attack on Taiwan might be part of the underlying strategy. China still considers Taiwan to be a rogue province, rather than an independent nation, and it bristles and makes saber-rattling threats whenever Taiwanese officials make the slightest suggestion of becoming independent. There is evidence that technology is being devised by the Chinese to counteract some of the advanced technological capabilities of US and European military systems. As China becomes more self-sufficient in making the most advanced integrated circuits for its own purposes, some of this technology might be turned toward such areas as electronic countermeasures and missile guidance rather than DVDs and workstations. On some occasions, China has exported weapons and provided support to nations that pose a danger to the world community.

If China is intent on becoming a valued partner among industrialized nations, it could signal its willingness by its actions in the marketplace. Its trade balances, however, are overwhelmingly distorted in China's favor, and it has proven very slow in moving toward the standards of the World Trade Organization. In the process tool business, "I don't know of any vendor that is making money in China," commented Jim Healy, president of Spirox Corp., during a session at Semicon West. The Chinese are very adept at keeping investment pouring in by using the lure of eventually tapping its immense market. Each region comes up with its own laws and regulations, and these are constantly changing, often with the result of any increased business enriching the Chinese rather than the investors. While manufacturing costs may be low, profits have a way of being siphoned off before being repatriated.

This magazine has sponsored China Electronic Business Forums in past years, and helped companies like KLA-Tencor and GE Capital gain a foothold in the Chinese market. We found many brilliant, capable Chinese engineers and business people, and made new friends. But they are not necessarily the ones influencing policy and guiding national decision making. It makes sense for the Chinese to develop more chipmaking skills, because nearly 80% of their chips have been imported. But most of those chips are for consumer and industrial systems, not the most advanced types. Now the foundries being built there appear to be geared more toward exporting chips than just making them for domestic needs.

It is ironic that the Taiwanese, the people most potentially threatened if hard-line factions gain ascendancy in China, are leaders in upgrading capabilities there. Until the direction of Chinese leadership becomes clearer, and they send stronger signals of fair play and responsibility toward the world community, it might be wise to go slow on helping them gain equality with the most advanced chipmakers in the world.