Wang Longxing, a senior consultant at the Shanghai Integrated Circuit Industry Association, stated that the Chinese government is fully supporting the local semiconductor industry with incentives such as tax exemptions for the first two years of profits and halving taxes in the third year for semiconductor equipment, IC design, and chip manufacturing companies. These measures help alleviate the initial R&D investment losses in high-tech industries, thus fostering the upward development of China's semiconductor industry.
Apart from policy support, the increasing demand for mobile devices in mainland China is also a critical driver for the robust growth of the semiconductor industry. Wang further explained that the Chinese consumer market has now become the largest in the world, with the demand for smartphones, tablets, and laptops growing annually. This surge in demand has driven the overall output value of the mainland semiconductor industry from RMB 100.63 billion in 2006 to RMB 218.55 billion in 2012.
According to the latest report from the Shanghai Integrated Circuit Industry Association, the compound annual growth rate (CAGR) of China's mainland semiconductor industry from 2006 to 2012 was 18.8%. Specifically, the IC design industry's CAGR was 25.7%, chip manufacturing was 15.4%, and packaging and testing was 17.6%. The industry is expected to continue its rapid growth in 2013 and 2014.
Currently, the mainland semiconductor industry is concentrated in four major regions: the Yangtze River Delta, the Bohai Rim, the Pearl River Delta, and the central and western regions. Among these, the Yangtze River Delta, particularly the Shanghai Semiconductor Industry Park, is the most important development core due to its complete industrial chain system, accounting for about 31% of the total output value of mainland China’s semiconductor industry.
Wang added that after intensive construction in 2011, the Shanghai Semiconductor Industry Park entered a phase of high-tech and high-production capacity in 2012. Future plans include adding the Zhangjiang Hi-Tech Park, Caohejing Development Zone, and Zizhu Science Park as key development areas, further enhancing Shanghai's influence in the semiconductor industry.
Despite the rapid development, mainland China's semiconductor industry still lags behind international standards in terms of technology. Wang acknowledged that China's semiconductor industry is making efforts to catch up with international levels in process technology. By 2015, the IC design technology in mainland China is expected to reach 22/20nm, and packaging technology is anticipated to enter the mainstream, expanding the production capacity of advanced packaging forms such as Flip Chip, BGA, CSP, WLP, and MCP.
Besides the support from tax incentives, the rise of mainland China's mobile device brands in the global market has also accelerated the growth of local component manufacturers. These manufacturers are gradually entering the supply chains of international mobile phone brands, highlighting their increasing technical capabilities and starting to challenge the global market positions of their counterparts in Europe, America, and Taiwan.
Gartner Research Vice President Hong Cenwei pointed out that with the rising global market share of Chinese mobile phone brands like ZTE, Huawei, Lenovo, Yulong Coolpad, and Xiaomi, mainland Chinese IC design companies are successfully entering the international market and expanding their production scale, constantly improving their R&D capabilities.
Hong explained that Chinese brands like ZTE, Huawei, and Lenovo have invested significantly in supporting their supply chains to ensure the stable supply of key components. Component suppliers benefit from the global shipment of Chinese brand mobile phones, gaining mass production experience and the ability to supply large quantities, thus starting to enter the supply chains of international mobile phone brands.
For example, Spreadtrum’s baseband chips have been adopted by Samsung's new smartphones, AAC Technologies' MEMS are integrated into Sony products, and O-Film's touch modules are used by many brands. These developments demonstrate the increasing presence of mainland Chinese component manufacturers on the international stage, becoming a key driver for the growth of the semiconductor industry.
The rise of mainland Chinese component manufacturers poses a significant challenge to Taiwanese counterparts, but it also presents new market opportunities for Taiwanese foundries like TSMC and UMC. Hong analyzed that since SMIC's process technology cannot yet meet the fast-growing demands of mainland Chinese chip companies, many chip companies are outsourcing their production to Taiwan, potentially bringing more orders to Taiwanese foundries.
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