Semiconductor International

Michael Pecht, Weifeng Liu, CALCE = Electronic=20 Products and Systems Center, University of Maryland, College = Park,=20 Md. David Hodges, Electrical Engineering and Computer = Sciences,=20 University of California, Berkeley, Calif. -- = Semiconductor=20 International, 9/1/2000

At a = Glance

The development of China's semiconductor = industry has=20 become the number one priority of China's = Ministry of=20 Information Industries, next to information = technology.=20 This paper outlines the state of China's = semiconductor=20 industry, comments on possibilities for future=20 development, and notes the opportunities and = challenges=20 facing=20 = China.

Domestic demand for semiconductors, especially integrated = circuits (ICs), is growing rapidly in China, stimulated by = the=20 development of information technology and advanced = telecommunication=20 infrastructures throughout the country, and by growing = demand for=20 common consumer products. Although it is difficult to gauge = the=20 exact number of ICs being imported, various estimates of = China's=20 semiconductor market (e.g., by Dataquest, the Japan = Electronics=20 Industries Association and SEMI) indicate its size was about = $5B to=20 $7B in 1996 and $8B in 1997.^1,2=20 In 1999, chip sales in China totaled $8.6B, or about 5.9% of = worldwide semiconductor revenues. Market researchers from = Cahners=20 In-Stat Group estimate China's chip purchases will increase = at a 33%=20 annual rate from 1999 to 2003, pushing the country's = semiconductor=20 market to nearly $27B in the next three years, or 8.6% of = the world=20 market. By 2010, China is expected to become the world's = second=20 largest market for semiconductors, next to the United = States.³=20 In contrast to the highly sophisticated production = facilities of=20 Korea and Taiwan, mainland China's semiconductor industry = still=20 consists of relatively small-scale manufacturers with low=20 productivity and low-level process technology. In fact, the=20 semiconductor manufacturing sector is the weakest link of = China's=20 electronics industry; 95% of the electronic products = produced in=20 China depend in some way or another on semiconductor = components=20 imported from the United States and Japan.

China's wafer fabs generally have only the capability to=20 commercially produce 125 mm and 150 mm wafers with 0.5 to = 1.6 =B5m=20 line widths. They account for less than 1% of global chip=20 production, meeting only 20% of domestic demand =97 far = short of what=20 is needed.⁴=20 Clearly, predictions that China will account for 15% of = total Asian=20 demand for semiconductors, with projected annual sales of = over $2B,=20 will not be true.

Poor infrastructure and economic system, and long supply = chains=20 for raw materials and manufacturing equipment, contribute to = inefficiency in the industry. Ongoing inability to transform = technology into commercial success impedes shifting from = R&D to=20 production and marketing. Technology export control from = developed=20 countries blocks China's efforts to import advanced = manufacturing=20 equipment and upgrade wafer-processing technology.

Despite limitations, China's semiconductor industry is = expanding.=20 From 1994 to 1997, the average growth rate of China's IC = production=20 was more than 60%. In 1998, China produced 1.5B ICs, an = increase of=20 more than 25% over 1997.⁶=20 In 1999, IC production there amounted to 2.3B =97 more than = 50% above=20 the 1998 level.⁷China's=20 IC industry was virtually nonexistent before 1980. Even in = 1996,=20 China produced less than 1% of the world's ICs. But the = strength of=20 the country's growing electronics sector =97 already a major = exporter=20 =97 assures a ready market for any suitable IC the Chinese = wafer=20 fabrication plants can produce. Help for this budding = semiconductor=20 industry is coming from international companies such as=20 Motorola, NEC, Mitsubishi,=20 STMicroelectronics, Philips, Siemens, = and=20 Toshiba. These companies are transferring technology, = investing capital, building wafer fabs and forming joint = ventures=20 with Chinese partners.

Government = goals for=20 China's IC industry

During China's Eighth Five-Year Plan (FYP) period = (1991-1995),=20 the electronics industry experienced rapid increases in = production=20 and technology capability, output, and international trade = volume.=20 By the end of that period, the total output of China's = electronics=20 industry reached $30B.⁸=20 However, the output of integrated circuits was far from = meeting the=20 electronics industry's ever-increasing demand. In its Ninth = FYP=20 (1996-2000), the Chinese government was anxious to further = increase=20 its domestic IC production capability. China's government = expressed=20 its goals for IC production in broad terms:⁸

=95Reach large-scale production levels for 150 mm and 0.8 = =B5m=20 process technology.
=95Enter industrial production for = 0.5 =B5m and=20 200 mm wafer technology.
=95Increase IC design = capability to meet=20 market demands.
=95Pursue R&D in 0.3 to 0.4 =B5m and = advanced=20 packaging technology.
=95Develop 200 mm, single-crystal = wafer=20 technology and begin domestic production.

In pursuing these goals, China had to rely on foreign=20 technological know-how, while at the same time taking steps = to=20 protect its large market from foreign domination. Therefore, = many=20 restrictions were imposed on China-foreign joint ventures as = well as=20 on wholly owned foreign enterprises to guarantee a certain = level of=20 technology transfer to China and promise a significant = portion of=20 output for export.

Project 909=20

As a major part of China's Ninth Five-Year Plan, to = encourage=20 domestic IC production capability and reduce reliance on=20 semiconductor imports, China launched its largest-ever IC=20 development project in December 1995 in the Pudong New Area = of=20 Shanghai. With an investment of more than $1.2B, this = project is the=20 largest ever undertaken in China's electronics industry. The = Pudong=20 Microelectronics Center enterprise is just one piece of a = larger=20 effort known as Project 909, sponsored by China's Ministry = of=20 Electronics Industries (MEI) (which in 1998 merged with the = Ministry=20 of Posts and Communications to become the Ministry of = Information=20 Industries). The project calls for establishing five major = IC=20 production companies and as many as 20 design and = development=20 centers by the year 2000.⁹=20 Its primary targets in semiconductors are to develop = advanced 0.3 =B5m=20 chip technology in labs; produce 0.5 =B5m chips on a trial = basis; and=20 mass-produce less sophisticated 0.8 =B5m chips, with a = production goal=20 of 1.2B units this year and gross sales reaching $1.2B (10B = yuan).=20 Shanghai was chosen as the preferred site because it had = become the=20 center for microelectronics production in China. In 1995, = Shanghai=20 plants accounted for 21% of total Chinese semiconductor=20 production.⁵=20 Project 909 started with the development of a 200 mm, 0.35 = =B5m wafer=20 manufacturing facility in a joint venture between Huahong = Group and NEC of Japan. Production began in March = 1999=20 and one year later reached 10,000 wafers per month. Output,=20 primarily DRAM, is exported back by NEC to Japanese markets. = Plans=20 for several other manufacturing facilities with similar=20 technological capability have not yet come to fruition. The=20 limitation has been unavailability of large capital = investments=20 under terms that would maintain a large degree of Chinese = control.=20 The ultimate goal of Project 909 is to bring 0.35 =B5m very=20 large-scale integrated circuit (VLSI) technology to bear on=20 telecommunication and computer-use ICs for both Chinese and = export=20 markets.¹

IC production = and market=20 size

China's total output in IC products reached close to 760M = units=20 in 1996, which accounted for less than 0.5% of world=20 production.¹⁰=20 In terms of technological sophistication, China first = applied 5 =B5m=20 process technology =97 which was the level of technology in = the United=20 States and Japan during the early 1970s =97 to manufacture = IC products=20 in 1986. In 1994, China was able to improve its IC mass = production=20 process capability to 3 =B5m, which was applied to two MOS = LSI=20 production facilities in Hua Jing Electronics Group.¹⁰=20 In 1995, the Chinese government approved $257M (150M yuan) = to build=20 several VLSI plants. Of this, $168M (1.4B yuan) was spent = for Hua=20 Jing to construct a single, 0.8-1.0 =B5m VLSI product line. = The=20 monthly output capacity is expected to be 10,000 pieces of = 150 mm=20 wafer and more than 50 varieties of IC products.¹⁰=20 In 1997, of some 3000 different kinds of IC products, most = were=20 small-scale ICs using 0.8 =B5m processing technology, which = satisfied=20 about 10% of total domestic demand. The technology in 1997 = was 0.8=20 =B5m on 100, 125 and 150 mm wafers. The Chinese government = is seeking=20 business partners from industrialized nations for = transferring 0.5=20 =B5m (and smaller) and 200 mm (and bigger) semiconductor = manufacturing=20 technology.

Despite rapid increases in production capacity and = technological=20 sophistication, China's IC production is unable to meet = domestic=20 demand. Imports accounted for 2/3 to 4/5 of China's needed = ICs. LSI=20 and VLSI products are almost entirely dependent on imports. = The=20 Chinese government continues to make great efforts to = increase local=20 production of ICs and reduce dependence on imported IC = products.

1. Color = television=20 has been the largest user of IC products in China.=20 (Source: Howell et al.=20 1995)

Tables 1 and 2 show China's growth in domestic IC demand = and=20 production, as well as the status of IC import and export. = Figure 1=20 breaks down China's semiconductor market by type of = application.=20 Color television was the largest user of IC products; = however, the=20 percentage has dropped from 33% in 1992 to 27% in 1995. In = 2000,=20 consumer products are expected to account for 28.7% of = China's IC=20 market, telecom products for 19.4%, and PCs and their = peripheral=20 products for 18.9%.¹¹=20 Besides PC and telecom products, the market for IC cards has = shown=20 tremendous development. IC cards were first introduced in = China in=20 1995, and are used mainly in public telephone, bank, parking = lot,=20 purchase and personal ID. Their use is continuously = increasing. More=20 than 80M IC cards were issued in 1998, a 200% increase over = 1997.=20 The total number of IC cards in circulation in 1999 was = expected to=20 exceed 150M.¹²=20 By the year 2000, it is expected that Chinese people will = buy more=20 than 250M IC cards for use in 700,000 public telephones = across the=20 country, making it the world's largest IC card = market.¹³

Table 1. Total IC Demand and Production in = China=20 (million units)=20

Year Total IC Demand ¹ China's total IC output ² IC demand met from domestic production (%) Total output of IC products &chips = ³=20

1993 850 178 21 180

1994 1,000 245 24 250

1995 1,500 515 33 786

1996 2,200 758 34 1,149

1997* 2,800 800 29 N/A

2000 (forecast) 4,200 2,000 ~50 2,500

1. SEMI estimates, Weng 1996 and CEInet = China IT=20 Market Report 1997.
2. China Electronics Industry = Yearbook=20 1997, p.146.
3. CEInet China IT Market Report = 1997.

Table 2. China's IC* Import and Export = Markets=20

Year Import units(billion) Export units(billion) Import value($billion) Export value($billion)

1995 5.9 0.9 2.2 0.37

1996 6.9 1.3 2.7 0.60

1997 9.6 2.5 3.5 0.86

1998 11.6 3.2 4.5 0.94

* Including microelectronics=20 components
(Source: China Electronics Industry = Yearbook=20 1997, p. 147, 1999, p. 211)

IC technology = and product=20 development status

Despite the rapid increase in production and technology, = China's=20 IC industry still lags far behind the technological levels = of=20 advanced countries. The Chinese government is determined to = push=20 forward China's IC design and manufacturing capabilities = through=20 collaboration with global technology partners. Table 3 shows = the=20 status of IC technology development in China and several = major=20 technological cooperative ventures between foreign = multinational=20 corporations and domestic semiconductor companies in = 2000.

Table 3. IC Manufacturing Technology Status in=20 China=20

Company (location) Foreign partner Chinese partner Product sector Technology (monthly wafer capacity, year = 2000)=20

ASMC (Shanghai) Philips Semiconductors Shanghai Belling Wafer foundry 125 mm, 1.5 =B5m Bipolar (25,000) 150 mm, 0.6 =B5m = CMOS=20 (15,000)

Shanghai Belling (Shanghai) Alcatel(Belgium) Shanghai Hua Hong/Shanghai Bell Co. Telecom IC Card Consumer 100 mm, 1.2-2 =B5m MOS 100 mm, 3 =B5m BiCMOS (total, = 13,000)

Shougang-NEC (Beijing) NEC (Japan) Capital Iron & Steel Co. 4 Mbit DRAM,64 Mbit DRAM,MCU 150 mm, 0.35 =B5m CMOS 150 mm, 1.2 =B5m MOS (total,=20 10,000)

Hua Jing (Wuxi) State-owned Consumer 100 mm, 2-3 =B5m Bipolar (15,000) 125 mm, 2-3 =B5m = Bipolar=20 (1600) 125 mm, 3 =B5m MOS (10,000) 150 mm, 0.6 =B5m = CMOS=20 (10,000)

Hua Yue(Shaoxing) Zhejiang Province Consumer 75 mm, 5 =B5m Bipolar 100 mm, 3-5 =B5m Bipolar 125 = mm, 2 =B5m=20 Bipolar

Shanghai Hua Hong NEC (Shanghai) NEC (Japan) Hua Hong Electronics 64 Mbit DRAM Logic IC 100 mm, 0.35 =B5m CMOS (16,000) 200 mm, 0.35 =B5m = logic chips=20 (4000)

CSMC-Hua Jing (Wuxi) CSMC/Hua Jing Wafer foundry 125 mm, 0.5 =B5m CMOS (28,000) 150 mm, 0.5 =B5m CMOS = (16,000)

(Source: IEEE Spectrum, December 1995; = D. Greene=20 1996; and Tsuda 1997; WSC study visit, = 4/2000)

In addition to cooperation with foreign partners to = develop and=20 transfer technologies, several organizations and research=20 departments have been established over the years by = government=20 agencies and universities to advance domestic IC technology=20 development and manufacturing capability. Table 4 presents = eight=20 research institutes and the corresponding IC technologies = that are=20 under development.

Domestic = semiconductor=20 manufacturers

Of China's current total of 330 semiconductor plants, 36 = produce=20 ICs, and the rest produce discrete devices. Among the 36 IC=20 manufacturers, only a few do wafer processing and IC = fabrication;=20 most focus on electronic packaging and test. The IC = fabrication=20 companies include Shanghai Hua Hong Group Corp.; = Shougang=20 NEC (Beijing); Advanced Semiconductor Manufacturing = Corp. (ASMC,=20 Shanghai); Shanghai Belling Microelectronics Manufacturing = Co. Ltd.;=20 Hua Jing Electronics Group Co. (Wuxi); and Hua Yue = Microelectronics=20 Co. Ltd. (Shaoxing). Most of China's major semiconductor = facilities=20 are partly or wholly foreign-owned by companies such as = NEC,=20 Matsushita, SGS-Thomson, Philips, = Northern=20 Telecommunications, Samsung, Motorola,=20 Harris, and Intel. China's state-of-the-art=20 semiconductor technology at present is 0.35 =B5m with some = still at a=20 level of 2-3 =B5m, well behind the 0.18 =B5m or 0.13 =B5m of = the West.=20 Many advanced equipment makers are selling China their older = machines for 1 to 1.5 =B5m specifications. Chinese = facilities are=20 making large deals to acquire foreign semiconductor = manufacturing=20 equipment, process software, and know-how for both common = and=20 state-of-the-art technologies. Although China's government = is=20 encouraging foreign investment as a means to hasten = technology=20 advancement, it is working on major projects to lessen its=20 dependence on foreign chip suppliers.

Details of several of China's largest and most advanced = IC=20 manufacturers and the newest fabs being constructed in China = can be=20 found on pages 148-162.

IC industry = assessment=20

In 2000, the Chinese IC industry can be characterized by = the=20 following features:

=95Inadequate capacity and low productivity =97 China can = satisfy=20 only 20% of its domestic needs.
=95Strong competition = =97 China must=20 compete against Western and Asia-Pacific companies equipped = with=20 much better technologies and financial resources. =
=95Poor=20 infrastructure =97 China's IC infrastructure is immature; = lack of=20 peripheral industries (e.g., equipment manufacturing, = assembly and=20 testing) is a major concern for future growth. =
=95Inadequate=20 research and development =97 Most of the advanced = technologies are=20 acquired from foreign countries.
=95Rapidly growing and=20 sophisticated design capabilities =97 This may potentially = negate the=20 other problems.
=95Strong government support.

The major emphases in the development of China's = semiconductor=20 industry in the coming century will be seen in the following = areas:

=95IC design capabilities.
=95Wafer preparation and = chip=20 manufacturing, including polysilicon, crystal silicon = preparation=20 and process, doping process, pattern microfabrication, = dielectric=20 thin-film technology, metal thin-film technology, and = cleanroom=20 techniques.
=95IC assembly, testing and reliability.

The 64 Mbit DRAMs made recently by Shougang NEC = Electronics=20 Co. Ltd. and Shanghai Hua Hong Group Co. Ltd., = both of=20 which are Sino-Japanese joint ventures, indicate China's=20 manufacturing technology of large ICs is on track to catch = up to the=20 level of industrialized nations. But China has yet to = achieve mass=20 production of ICs by using 0.35 =B5m process technology. = Other areas=20 targeted for major development efforts include 1Mb SRAM, 4 = Mb ROM,=20 IC cards containing EPROM, flash memory, 200k CMOS gate = array, 300k=20 CMOS standard cell, 50k BiCMOS gate array, and = high-performance DSP.=20 If the current pace of technological progress in China = continues=20 without disruption, it is expected that by the year 2005, = 0.35 =B5m=20 process technology will be implemented in mass production of = ICs. By=20 the year 2010, China also may expect to reach the = technological=20 level of 1M gate array, 250 K BiCMOS gate array, 4-16 Mb = SRAM, 4-16=20 Mb flash memory, and 128 Mb DRAM.

China's party, governmental and industrial bureaucracies = have=20 held back the nation's advance as an electronics consumer = and=20 manufacturer for decades. But the giant is awakening, and = China will=20 reshape the landscape of the global electronics industry as = it=20 assumes a role on the world stage. The power of a market = consisting=20 of 1.2B people cannot be ignored. =95

Michael Pecht is director of the CALCE Electronic = Products and=20 Systems Center at the University of Maryland and a full = professor.=20 He has a B.S. in acoustics, M.S. in electrical engineering, = and M.S.=20 and Ph.D. in engineering mechanics from the University of = Wisconsin.=20 He has authored 11 books on electronics products = development, and is=20 an IEEE fellow, ASME fellow and Westinghouse fellow. He was = chief=20 editor of the IEEE Transactions on Reliability for = eight=20 years and on the advisory board of IEEE Spectrum . He = is=20 chief editor for Microelectronics Reliability = International=20
Tel: 1-301-405-5323
e-mail: pecht@calce.umd.edu.

Weifeng Liu holds a B.S. in materials science from = Lanzhou=20 University and an M.S. in materials engineering from = Shanghai=20 Institute of Ceramics, Chinese Academy of Sciences. He is a = Ph.D.=20 candidate at CALCE Electronic Products and Systems Center,=20 University of Maryland. His research interest is reliability = assessment of electronic devices. His current focus is on=20 reliability assessment of land grid array elastomer = sockets.
Tel:=20 1-301-405-8038
e-mail: wfliu@calce.umd.edu

David A. Hodges is a graduate school professor at the = University=20 of California-Berkeley, where he has been a faculty member = since=20 1970. He served as dean of Berkeley's College of Engineering = from=20 1990 to 1996. He is co-director of Berkeley's Competitive=20 Semiconductor Manufacturing program.=20 (http://euler.berkeley.edu/esrc/csm/index.html) He was = founding=20 editor of the IEEE Transactions on Semiconductor = Manufacturing=20 , and is a past editor of the IEEE Journal of = Solid-State=20 Circuits . He is an IEEE fellow.
Tel:=20 1-510-642-3539
e-mail: hodges@eecs.berkeley.edu
=

REFERENCES

Lammers, David, "Japan Gaining Inside Track to China's = Chip=20 Market," EE Times - Headline News (CMP Media, Inc.) = ,=20 1997.
Koo, George P., "China Seeks World-Class Semiconductor=20 Industry." Channel Magazine . November 1997. See www.semi.org/__882565b10062217a.nsf/ad09cecebf092f7188256= 5e60016fc57/
48517f338eb6936d8825675b0058f69a!OpenDocument&Highlig= ht=3D0,China,seeks*.
Semiconductor Business News , Feb. 24, 2000. =
Johnson, Grant, "Is China's Semiconductor Market Worth = the Risk=20 for Multinationals? Definitely!" Electronic News , = March=20 29, 1999. See www.inst= at.com/insights/semi/1999/china42999.htm
Simon, Denis Fred, "From Cold to Hot =97 China Struggle = to=20 Protect and Develop a World-Class Electronics Industry." = The=20 China Business Review , Vol. 23, No. 6, = November-December=20 1996, pp. 8-16.
China Electronics Industry Yearbook 1999, = Electronics=20 Industry Publisher, Beijing, China (in Chinese).
Xinhua Ne ws, 3 May 2000.
Schumann, Elizabeth. "Market Focus: China. A feature of = SEMI's=20 Equipment and Materials Market Statistics Program." = Channel=20 Magazine , February 1997. See www.semi.org/__= 882565b10062217a.nsf/ad09cecebf092f71882565e60016fc57/
b626d59b1517b58= 78825673d00772c06!OpenDocument
Johnson, Grant, "China Promotes Chips as Pillar of = Growth,"=20 Information Alert, April 26, 1999. See www.instat.com/in= foalert/alrt199917.htm
Weng, Shuo Song, "A Survey of the Chinese IC Industry." = Solid State Technology China , November 1996, pp = 14-17. (in=20 Chinese).
"China's IC Market Valued at 46.2 BLN Yuan in 2000," = Asia=20 Pulse, March 17, 2000a.
Liu, Sunray, "In Rising Market, 150 Million Smart Cards = Set for=20 1999 Issue =97 China's IC-Card Industry Draws Global = Players," EE=20 Times , Aug. 2, 1999. See www.te= chweb.com/se/directlink.cgi?EET19990802S0030
"China to Be World's Largest Telephone IC Card Market," = Asia=20 Pulse, May 31, 1999.

Research for this paper was supported through the WTEC = program=20 managed out of Loyola College in Maryland. Some information = for this=20 paper was taken from the book The Chinese Electronics = Industry,=20 authored by M. Pecht et al in 1999.