China's Position in the Global Semiconductor Value Chain-- Still Playing Second Fiddle?

The paper presents evidence that China still plays second fiddle in all sectors of the semiconductor industry. The global semiconductor industry critically depends on China’s market. Yet, the main drivers of China’s semiconductor consumption are foreign companies that conduct final assembly in China of electronic equipment that is sold in the US, the EU, Japan, or India. China’s semiconductor production has experienced significant growth, but it is not yet a major force in the global semiconductor industry. While recent capacity expansion means that China has newer wafer fabrication plants than its competitors, these plants use older technology (in terms of geometry and wafer size) or are second-hand plants. China’s IC design industry keeps growing rapidly, but its technological capabilities are still limited, in terms of process technology and design line-width. As for innovation, China remains a technology taker, following the established technology road map at some distance. China still has a long way to go before it can shape or at least co-shape the industry’s technology trajectory. In sum, China’s position in the Global Semiconductor Value Chain remains way behind the government’s aspirations. The global semiconductor value chain is dominated by the US, and to a lesser degree by Japan and the EU, Korea as well as Taiwan. China remains a lower-tier player, and it has a long way to go to catch up with the global leaders. Longer-term, however, there is no doubt that China’s government is committed to accelerate the development of China’s semiconductor industry. During the 12th Five-Year Plan, the focus of policy will shift away from the pursuit of capacity and output value growth toward improving R&D capabilities and competitiveness of Chinese firms.