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GDP dollar estimates for all countries are derived from purchasing power parity (PPP) calculations rather than from conversions at official currency exchange rates. The PPP method involves the use of standardized international dollar price weights, which are applied to the quantities of final goods and services produced in a given economy.
Industry analyst Joseph Abelson of iSuppli forecasts that China's production of electronic equipment will rise to $186 billion in 2004, up 11.2 percent from $167 billion in 2003 and production will increase to $270 billion by 2007. Semiconductor market researcher Databeans Inc predicts that the demand for integrated circuits in China will increase by 35% in 2004 to reach $31 billion. In 2009 China's IC consumption would amount to 25 percent of worldwide IC revenue, or $69 billion. China's own chip production while growing very fast amounted to only $1.2 billion in 2003 according to IC Insights. By 2005, China's chip industry is projected to reach $4.18 billion, or only 2.5 percent of the total IC market.
Trade Between US and China
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About 98% of Chinese imports to the United States were manufactured commodities. Some of the fastest growing imports included information and communications technology equipment (an increase of $9.5 billion in 2003), electronics ($107 million), and aerospace products ($25 million). On the import side China is already the largest mobile phone market, the second largest PC market and the third largest and fastest growing semiconductor market. Semiconductors are the second largest US export to China and China's number one import. According to SEMI China spent $1.1 billion dollars on semiconductor capital equipment in 2003 out of $22 billion worldwide expenditures.
China and EDA Vendors
In December 2001 Cadence Design Systems, Inc. announced it was investing $50 million in China to enhance sales, support and services. The expansion included moving to a direct sales business model in China and investing heavily in infrastructure. Cadence established four offices in China-in Beijing, Shanghai, Chengdu and Shenzhen-has and a new wholly owned subsidiary named Beijing Cadence Electronic Technology Company Ltd. The number of technical support, sales, and marketing employees in China was doubled to about 80.
In May 2002 Cadence announced the opening of the Cadence High-speed Technology Centre in Shanghai to serve a growing customer base in Asia-Pacific with training, education programs, and methodology and consultancy services. In the initial stage, the Technology Centre will serve three markets: wireless communication, wired communication, and computing applications. The scope of service will expand to advanced packaging design and digital consumer applications over the next two years.
In October 2003 Cadence and Beijing Zhongguancun Software Education Investment Co Ltd, a consortium of Beijing-based investment companies and the Beijing government, marked the opening of the US$30 million Zhongguancun Cadence Institute of Software Technology (ZCIST) which will train 1,000 students a year.
In November 2003 Cadence and China's Ministry of Education Signed an MOU to develop China's first national IC design training program. The MOU sets the framework for the China National IC Design Talent Incubation Project. The program will initially focus on nine of China's top universities.
"We are extremely proud that the Chinese government has chosen Cadence to help China build a strong foundation as it becomes a global leader in IC design," said Ray Bingham, Cadence CEO. "We are also particularly honored that the government has chosen Cadence as its sole partner to provide EDA technology and training. At Cadence, we share the same vision as the Ministry of Education-to nurture IC design talent in China- which will ultimately help grow our presence and leadership position in China."
Synopsys opened its first office in China in 1995 and has since set up offices in Beijing, Shanghai, Hong Kong, and Shenzhen. In 2003, Synopsys relocated its Beijing office to a significantly larger location closer to the Chinese Academy of Sciences (CAS) and renowned universities. Over the past five years, the average annual growth rate of Synopsys' revenue in China was approximately 70 percent. Synopsys has formed a number of strategic partnerships in the China market, including founding the joint laboratory for advanced SoC design with the Chinese Academy of Sciences and supporting the construction of China state IC design incubators.
In March 2003 Synopsys, Inc. announced an agreement with the High Technology Research and Development Center (HTRDC) of the Chinese Ministry of Science and Technology (MOST) to donate IC design tools to the center. The agreement also includes the purchase of additional Synopsys tools by MOST to be used to support the construction of IC design incubators in seven regions where the Chinese government is encouraging the development of semiconductor industry.
On March 23, 2004 Synopsys announced the opening of an expanded Shanghai office, which now includes the R&D Center and houses more than 200 sales, R&D, and technical support employees.
"China's semiconductor industry continues to expand, making the China market increasingly important to Synopsys' strategic planning for both the Asia-Pacific region and the global market. As an important part of our China strategy and a testimony to our commitment to the local market, we have expanded Synopsys' Shanghai facility to address the growing opportunity," said Dr. Chi-Foon Chan President and COO of Synopsys.
In phone conversation Dr. Paul Lo, VP of R&D emphasized the importance of long term relationship with ministries, universities and customers. He pointed out the value of having been in China since 1995 with stable local management. He estimated the EDA market in China to be around $60 million with double digit growth.
On March 9, 2004 Mentor Graphics announced the signing of a memorandum of understanding (MOU) with the Ministry of Education (MOE) of the People's Republic of China to help the country boost its integrated circuit (IC) design engineering talent pool and overall industry growth. Under the MOU, Mentor Graphics will provide market-leading electronic design automation (EDA) products, training, and support to China's nine top universities for use as core academic education for professors and IC design engineering students. Mentor Graphics has been working with China's top universities and government research centers since 1989. Currently, there are more than 40 universities in the country using Mentor Graphics tools in daily curricula or in research projects.
Mentor commented to me that “We are working with the foundries on joint development of China's infrastructure for IC design, believing that the way to help China grow an IC industry is to introduce and develop methodologies specifically achievable in China. To that end, Mentor has formed a partnership with Peking University and its Microprocessor Research and Development Center, recognized as China's premier IC design development and training center, to provide training tools” And when asked about unique challenges in China Mentor responded “There are challenges. The addressable market is still small, relatively speaking. This is still "seeding time". But we see tremendous long term potential here, and we are committed to solving China's current and future design engineering needs.”
In February Magma Design Automation Inc. and the EDA center of the Chinese Academy of Sciences (CAS) announced the signing of a joint agreement to establish the Nanotechnology Integrated Circuit Design Lab. Under this agreement the lab will develop and provide advanced IC design solutions for nanometer technologies based on Magma's integrated RTL-to-GDSII flow. These solutions will be used in CAS' education programs, research projects and commercial applications, which aim to increase the availability of advanced IC design capabilities in China.
ARM opened its offices in Shanghai in July 2002. In July 2003 ARM announced that Semiconductor Manufacturing International Corporation (SMIC) had licensed its 7TDMI core and joined its Foundry Program.
China and World Trade Organization (WTO)
China was accepted into the WTO in December 2001. In preparation for or as consequence of joining China agreed to do several things. It signed the Information Technology Agreement which eliminates tariffs on chips, semiconductor manufacturing equipment, computers and other IT-goods. It passed a law extending intellectual property protection to semiconductor layout designs (maskworks). It pledged that state-owned enterprise would purchase products based on commercial terms not politics, that foreign firms could open plants without agreeing to transfer technology to Chinese firms and that foreign firms would have trading and distribution rights.
After unsuccessful negotiations the United States filed the first case against China at the World Trade Organization on March 18th, contending that Beijing imposes unfair taxes on imported semiconductors. China has a Value-Added Tax (VAT) of 17% on all imported and domestically produced semiconductors and integrated circuits. However, China provides a rebate of the VAT burden in excess of 3% for certain integrated circuits manufactured within China, representing a 14% differential. This discrimination against imported semiconductors is in violation of China's WTO obligations.
The Semiconductor Industry Association and the World Semiconductor Council (WSC) issued a joint statement in May 2003.
| Discrimination [due to the VAT policy] has the effect of limiting market access, distorting patterns of trade and investment and negates the benefits China promised to provide when it joined the WTO. The WSC calls for China to lower its VAT rate to 3% for all semiconductors regardless of origin. |
| China has agreed to consult with the United States on the alleged "discriminatory" value-added tax on chips, the Ministry of Commerce said in Beijing Friday. The message has been sent to the US side via the Chinese delegation to the World Trade Organization. The two sides will decide the detailed arrangements of the consultation after negotiation. |
Wi-Fi Standards
Citing national security reasons China issued two new WLAN standards in May 2003 that require the use of Chinese encryption technology standards. This impacts a wide range of technology products. These standards differ significantly from and are incompatible with internationally recognized protocols. Compliance would require adapting of products solely for the Chinese market and would lead to interoperability problems. The standards are now schedule to go into effect in June 2004.
The encryption standard is called Wired Authentication and Privacy Infrastructure (WAPI). Chinese authorities are requiring foreign Wi-Fi equipment manufacturers to work with 11 specific Chinese partners in value-added production to acquire the necessary encryption standard. Foreign firms fear that this will require them to share a considerable amount of intellectual properties with their Chinese competitors.
U.S. Secretary of Commerce Donald Evans, Secretary of State Colin Powell and U.S. Trade representative Robert Zoellick sent a letter to Chinese Vice Premier Wu Yi and others to reconsider the law.
| "We are particularly concerned that the new rules would require foreign suppliers to enter into joint ventures with Chinese companies and transfer technology to them, … Such compelled investment would appear to be inconsistent with China's WTO commitments." |
| "We have determined we are not able to produce products by the June 1 deadline that meet our quality standards, and we don't have a schedule or roadmap to produce those products. As a matter of philosophy, we continue to believe that proprietary closed standards specific to one country are the wrong business model. We believe that global standards are fundamental to making wireless LANs a viable technology worldwide." |
On the other hand the U.S. semiconductor equipment manufacturing industry is trying to push the United States into greater cooperation with China. Under current regulations, U.S. equipment makers can't easily ship high-end equipment to China. The Wassenaar Agreement regulates the export of any products that could be used to enhance military capabilities or provide technology to countries whose policies do not restrict the proliferation of military technology. US ATE suppliers must obtain export licenses to sell systems with pattern generation rates higher than 333 MHz to customers in China. Obtaining the licenses can take up to six months. As a result, U.S. manufacturers are losing out on sales to European and Asian competitors, according to the Semiconductor Equipment and Materials Institute and others.
Intellectual Property
The WTO's TRIPs (Trade-Related Aspects of Intellectual Property Rights) Agreement requires an enforcement system that: permits effective action against infringements; provides expeditious remedies which constitute a deterrent; is fair and equitable; is not unnecessarily complicated or costly; and does not entail any unreasonable time limits or unwarranted delays. TRIPS requires that member countries must apply their criminal laws in cases of commercial piracy; it is not enough to merely have laws on the books unless those laws are used effectively. In 2001, in accordance with its WTO commitments, China improved its legal framework considerably, amending its patent, trademark and copyright laws to comply with the WTO Agreement on TRIPs.
The International Intellectual Property Alliance has recommended that China remain subject to TRIPS monitoring due to lax enforcement of laws against piracy. The IIPA is a private sector coalition representing the U.S. copyright-based industries in efforts to improve international protection of copyrighted materials. The IIPA estimates losses due to piracy of copyrighted materials (excluding entertainment software) in China were over $1.8 billion dollars in 2002.
Chinese companies and software engineers also often see their own software fall victim to IPR violations, which is increasing the pressure for better protection. The long-term solution against piracy lies in mobilizing domestic firms to take the lead in IPR protection.
In January 2003 Cisco filed suit against Huaewi Technology Ltd in Texas. Cisco alleged that Huawei unlawfully copied and used Cisco's IOS software, Cisco documentation, and other copyrighted materials, and infringed at least five Cisco patents. In October the two firms came to agreement and Huaewi will abide by an injunction and has made changes to certain of its router and switch products.
Taiwan Semiconductor Manufacturing Co. (TSMC) filed court papers March 22nd in U.S. district court detailing alleged corporate espionage on the part of its mainland China competitor, Semiconductor Manufacturing International Corp. (SMIC). Last December TSMC filed a suit alleging infringement of five U.S. patents as well as stolen trade secrets. SMIC argued TSMC's allegations involve activities that have only taken place in China and Taiwan, therefore federal and California state laws are not applicable.
Afterword
In the keynote address at the SEMICON China 2004 market briefing Zhang Qi of China's Ministry of Information Industry (MII) said during the past two decades China has encouraged the growth of the information industry as an accelerator for the overall economy. The information and electronics sector now accounts for about 44 percent of China's total exports.
In terms of employment, the sector provides jobs for over four million people, up 11 percent from the previous year. Madam Qi also noted that China's IC industry made dramatic technology progress during 2003. “The gap between [China] and developed countries is narrowing,” she said.
Although Chinese technologies currently are two generations behind the leading edge, by 2005 the leading semiconductor foundries will have closed that gap to just one generation according to iSuppli. In the first nine months of 2003, three new 200mm fabs entered pilot production in China from Advanced Semiconductor Manufacturing Co. (ASMC), Grace Semiconductor, and He Jian Technologies. Two others are scheduled for production by the end of 2005. While China has no 300 mm fabs in operation today, analysts expect four to be in operation by 2007. SMIC has partnered with Infineon Technologies AG to build the first 300mm fab in China this year, in Beijing. At SEMICON China 2004 David Wang, EVP of Applied Materials said that out of every four wafers produced in the world today, two are from China and Taiwan. He predicted that within 10 years one out of every two wafers would be produced by chipmakers in China and Taiwan.
Thanks to government sponsorship and outside capital investment China has become a major player in the semiconductor industry. For example, according to Strategic Marketing Associates Intel employs 2,400 people in China having invested more than $1B in China including a $500 million plant in Shanghai to produce Pentium 4 chips. Intel plans to build a second testing and assembly plant in China this year for $675 million in Chengdu, in southwestern China. Already, more than 10 percent of Intel's yearly revenue of $30 billion comes from China, the company's biggest customer outside the United States. Much of the chip-industry activity is taking place in the area near Shanghai known as Pudong. The Shanghai government has invested about $13 billion in Pudong's infrastructure. Zhang Qi, director of the Administration Department of Electronic and Information Products with the ministry, recently said the country will invest 10 billion US dollars in the semiconductor sector by 2005.
All the leading EDA vendors are partnering with Ministries and Universities to create an educated workforce for IC design and for their products. Even smaller EDA firms are opening up operations in China. For example, in December Altium announced the establishment of a direct presence and a strengthened reseller network in China. In January SynTest Technologies announced establishment of R&D and customer support operations in China and the appointment of Hyperform as distributor.
Weekly Industry News Highlights
Cadence Selects Denali Verification IP for PCI Express Design
Rising Accomplishes First Commercialized 10 Gbps Optical Transmission IC Tapeout in Record Time with Cadence Virtuoso Platform
Synopsys Becomes First EDA Company to Join IEEE-SA as Corporate Member
MIPS Technologies Verifies Newest 24K Processor Family with Mentor Graphics High-Performance VStationTBX Accelerator
Accelerated Technology Announces New Prototyping Environments for Nucleus Designers
Cadence Selects Denali Verification IP for PCI Express Designs
Synopsys' Star-RCXT Validated on UMC's 90 Nanometer Processes
Intellon Acquires Cogency Semiconductor Engineering Team and Intellectual Property
Atmel Introduces New In-Circuit-Emulator Targeted at Reducing Development Costs
National Semiconductor and Sun Microsystems Collaborate on New Mixed-Signal Gigabit Networking Chip for Sun's GigaSwift Ethernet Product Line
SBS Technologies Teams with Celoxica to Shorten FPGA Computing Development Time
Accelerated Technology Offers Complete Nucleus Development Environment for Xilinx Virtex-II Pro FPGAs
February Semiconductor Sales Up More Than 30 percent Year-Over-Year; Year-on-Year Growth Rate is Highest Since October 2000
More EDA in the News and More IP & SoC News
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