Chinese Official Admits to Problems in Developing Country’s Chipmaking Sector

November 30, 2020 Updated: November 30, 2020

A high-level Chinese official acknowledged at a forum on Nov. 28 that many of China’s investment projects in the semiconductor industry were short-sighted and ultimately failed.

Wang Zhijun, one of the deputy ministers at China’s Ministry of Industry and Information Technology, made the comments while speaking at the China Development Forum hosted by the prestigious Tsinghua University in Beijing, according to Chinese state-run media.

What’s happening now in the semiconductor industry has happened to other Chinese sectors, such as steel, cement, and photovoltaics, leading to production overcapacity, said Wang.

He said the semiconductor industry needed greater supervision and that companies needed to merge or restructure in order to improve their competitiveness.

Despite years of state-directed investment and heavy government subsidies to develop China’s own chip-manufacturing capability, the country mostly imports the semiconductors it needs. The  tiny chips power everything from cellphones and computers to missile systems. According to Chinese state-run media, China spent more than $300 billion in each of the past two years buying foreign chips, and is expected to spend a similar amount this year.

Through its industrial policy of “Made in China 2025,” Beijing aims to domestically produce 70 percent of its semiconductor needs by 2025. Such ambitions are unlikely to be met, according to a May report by Arizona-based semiconductor market research company IC Insights.

“IC Insights forecasts that at least 50% of IC production in China in 2024 will come from foreign companies such as SK Hynix, Samsung, Intel, TSMC, UMC, and Powerchip with fabs [short for fabrication plant] in China,” the report stated.

SK Hynix and Samsung are South Korean firms, while TSMC, UMC, and Powerchip are Taiwan-based semiconductor companies.

Wang’s Saturday comment was not the first time that Chinese officials have openly pointed out problems in China’s semiconductor industry.

In October, Meng Wei, a spokesperson for China’s National Development and Reform Commission, said that some Chinese companies got into the semiconductor business without having any experience, expertise, or qualified professionals, according to Chinese state-run media.

Meng also criticized regional governments for launching semiconductor projects without having a good understanding of development trends. Such insufficient understanding led to problems such as projects being suspended and factories becoming vacant.

This year alone, more than 50,000 Chinese companies have registered their businesses as being semiconductor-related, according to the Chinese database platform Tianyancha.

Several major state-supported semiconductors have run into financial trouble in the past two years.

Tacoma Semiconductor Technology, a company founded in 2015 and based in the Chinese city of Nanjing, was recently ordered by a local court to undergo compulsory liquidation and bankruptcy, according to a July report by business magazine Caixin, citing a corporate bankruptcy information website run by China’s Supreme People’s Court.

The court order came after construction on the company’s semiconductor fab was halted in March 2019 due to a capital crunch, said Tacoma chairman Li Ruiwei, according to Caixin. At the time, the Nanjing government had invested 384 million yuan (about $55 million) into the company.

Incoflex Semiconductor Technology, founded in 2018 and based in northwestern China’s Shaanxi Province, was in a state of flux after several senior executives left the company in late 2019 and employees said they weren’t getting paid in the first two months of this year, Chinese news portal Sina reported in April.

Wuhan Hongxin Semiconductor, founded in 2017 in central China’s Hubei Province, is now insolvent, reported U.S.-based online magazine EE Times on Nov. 20, citing comments by the company’s former CEO Chiang Shang-yi. The municipal government of Wuhan has now taken over the company.

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