China's chip industry awaits boom despite challenges

While China is known as the "world's factory," seemingly capable of making everything, semiconductor chips have been conspicuously absent on the "Made in China" list.

Statistics show that China's chip imports in 2013 grew 20.5 percent to reach 231.3 billion US dollars, exceeding imports of other goods, including crude oil. In fact, they have consistently topped China's import list over the past decade.

Considered "the heart" of all electronic devices, chips are vital for developing the broader information industry. Experts have called for more government support and industry innovation, as prolonged underdevelopment of China's chip sector could derail the country's economic upgrade and blunt its competitiveness.

SMALL CHIP, BIG BUSINESS

Chips are widely used in computers, consumer electronic devices, automotive electronics and Internet communications. Though small in size -- and getting smaller as technology advances -- chips are high in value and represent an important link in the information industry chain.

"There are several stages in the production of a semiconductor chip, including its design, manufacturing, assembly and testing," said Zou Xuecheng, a professor of semiconductor engineering at Wuhan-based Huazhong University of Science and Technology.

A semiconductor chip with production value of 1 US dollar translates into 10 US dollars in growth for the related information industry, and adds 100 US dollars to a country's Gross Domestic Product (GDP), Zou said, citing IMF research.

"With China's consumption of chips exceeding 200 billion US dollars, it means 20 trillion in GDP growth for the world's economy," Zou added.

However, China has failed to make gains in the chip production process. Though China's semiconductor use accounts for more than half of the global market, the country is overly dependent on foreign chip suppliers.

The market share for chips made by domestic manufacturers is merely 10 percent in China, according to Li Ping, vice general manager of XMC, a semiconductor manufacturer based in Wuhan.

Though 77 percent of cell phones sold on the global market are made in China, only 3 percent of chips in those phones are from Chinese suppliers, Li added.

According to a research report issued last year by the State Council, China's cabinet, China has the capacity to produce around 1.2 billion cell phones, 350 million computers and 130 million color TVs a year. Yet, Chinese companies have been reduced to worker bees for the international companies that take the lion's share of profits through patent fees on chips.