Semiconductors represent the cornerstone technology of the information age. These tiny devices power the world’s modern economies by serving as the data-processing brains in a wide range of products, from personal computers and smartphones to cars and spacecraft.

Growing trade tensions with the US, however, has exposed the soft underbelly of China’s technological ambitions. Despite hefty investments in the semiconductor industry over the years, China remains dependent on the US for high-end integrated circuits. The country’s annual chip imports have surpassed that of crude oil in recent years to reach US$312 billion in 2018.

Zhou Zhiping, a Peking University professor of microelectronics, spoke to the South China Morning Post on the sidelines of the Smart China Expo held last month in the southwestern city of Chongqing. Zhou was a founder and vice-president of production of the Hengnan Transistor Factory in China from 1970 to 1978 and a guest scientist at the National Institute of Standards and Technology in the US from 1987 to 1989. He is a fellow of SPIE, a professional society for optics and photonics technology, and senior member of the Institute of Electrical and Electronics Engineers, among his major affiliations.

From 2005 to 2008, Zhou was with Huazhong University of Science and Technology on a “Changjiang” special professorship appointed by China’s Ministry of Education. He is now a “Changjiang” professor at Peking University and guest chief scientist of Chongqing-based semiconductor firm United Microelectronics Centre. He has spent almost 50 years in the field of semiconductors in both academia and industry.

This is an edited interview with Zhou about the state of China’s semiconductor industry:

Jane Zhang: When did China decide to put a focus on building its own semiconductor industry?

Zhou Zhiping: From what I know, in 1970, there was a slogan encouraging everyone to develop the electronics industry. Moore’s Law has just come out for a short time and China did not lag behind the Western countries by much. At that time, the country still spent money and introduced 10 integrated circuit production lines from abroad. And I started to work on microelectronics in a collective-owned factory.

Q: How did China start to develop its semiconductor industry? What were some of the successes and missteps in the process?

From 1993 to 2005, I worked for 12 years at the Georgia Institute of Technology in the US. I returned to China for the first time in 1996, when I visited a microelectronics institute in western China. The facilities were not much better than when I built the factory in Hunan province [in the 1970s].
I also went to a university in central China. Their facilities at the microelectronics department were even worse than the factory I was in the 70s. In the mid-1990s, the domestic microelectronics industry was basically like this. There was a huge gap between Western countries and the two institutes I visited.

In 2000, [chip foundry] Semiconductor Manufacturing International Corp was established. It has played a very important role in promoting the technological advancement of China’s semiconductor industry. In fact, some people in China actually attached great importance to the industry, but it was not at a national level then.

Q: Some have suggested that Moore’s Law – which states that the number of transistors per square inch on an integrated circuit doubles every two years – is reaching its limit. Does that present an opportunity for China to catch up since rivals will now progress at a slower rate?

At the moment, the cost [of wafer fabrication] has not declined. The expenses involved are rising. The industry no longer obeys Moore’s Law because the smaller the chips are, the higher the cost. It has to overcome technical difficulties [to make smaller chips]. In terms of semiconductor manufacturing, we can now do 14-nanometre [fabrication process for creating integrated circuits on silicon wafers] in China.

By comparison, the semiconductor companies in the US and Taiwan have achieved seven-nanometre or even five-nanometre [fabrication process]. They are at least two or three generations ahead of us.

Q: Does China have a good chance to catch up with countries like the US and South Korea in semiconductors?

China can catch up. But the problems it must solve cover the whole industry’s ecosystem and supply chain. I think we need at least five to 10 years [to close the gap with those countries]. It takes time to lift up the whole ecosystem, especially when there is technology lock-in from other countries [in terms of hardware, software, services and intellectual property]. We have to develop the relevant equipment, tools and know-how.

Jane Zhang

Additional reporting by Tracy Qu

(This story was corrected for an erroneous employment start date)

• South China Morning Post. Published: 6:30am, 3 Sep, 2019:
https://www.scmp.com/tech/tech-leaders-and-founders/article/3024315/china-needs-five-10-years-catch-semiconductors

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How China is still paying the price for squandering its chance to build a home-grown semiconductor industry

• This is the first in a series of in-depth articles examining China’s efforts to build a stronger, domestic semiconductor industry amid rising trade tensions with US

• Here we look at how China came close to the US in the 1960s but lost its way, leaving it scrambling to catch up today

China is self-sufficient in nuclear power generation, it has put a man in space and it is leading in many areas of artificial intelligence.

But when it comes to semiconductor production, it remains woefully behind, spending more on imports of the chips that power the electronic gadgets, PCs and military equipment around us today than it does on oil.

Semiconductor design and production is a notoriously complex business, involving decades of expertise and extreme precision – get it slightly wrong and billions of dollars of investment can go up in smoke.

China has long been aware of the need to develop a strong semiconductor industry of its own but the recent trade war with the US, which threatens to cut off critical access to US components for national tech champions, has added extra urgency.

The trade blacklisting of Huawei Technologies by the US in May on national security grounds and an earlier ban on domestic rival ZTE for breaching an Iran sanctions settlement, has laid bare China’s reliance on the US when it comes to semiconductors, a vulnerability that has not been lost on China’s leaders.

“Technological innovation is the root of life for businesses,” China’s President Xi Jinping said in May on a visit to Jiangxi province, state-run news agency Xinhua reported. “Only if we own our own intellectual property and core technologies, then can we produce products with core competitiveness and [we] won’t be beaten in intensifying competition.”

What many people might not be aware of though is that China was close to the US in the 1960s when it came to early semiconductor technology – so close that it had a fighting chance of leading the industry.What many people might not be aware of though is that China was close to the US in the 1960s when it came to early semiconductor technology – so close that it had a fighting chance of leading the industry.

What many people might not be aware of though is that China was close to the US in the 1960s when it came to early semiconductor technology – so close that it had a fighting chance of leading the industry.

China is self-sufficient in nuclear power generation, it has put a man in space and it is leading in many areas of artificial intelligence.

But when it comes to semiconductor production, it remains woefully behind, spending more on imports of the chips that power the electronic gadgets, PCs and military equipment around us today than it does on oil.

Semiconductor design and production is a notoriously complex business, involving decades of expertise and extreme precision – get it slightly wrong and billions of dollars of investment can go up in smoke.

China has long been aware of the need to develop a strong semiconductor industry of its own but the recent trade war with the US, which threatens to cut off critical access to US components for national tech champions, has added extra urgency.

The trade blacklisting of Huawei Technologies by the US in May on national security grounds and an earlier ban on domestic rival ZTE for breaching an Iran sanctions settlement, has laid bare China’s reliance on the US when it comes to semiconductors, a vulnerability that has not been lost on China’s leaders.

“Technological innovation is the root of life for businesses,” China’s President Xi Jinping said in May on a visit to Jiangxi province, state-run news agency Xinhua reported. “Only if we own our own intellectual property and core technologies, then can we produce products with core competitiveness and [we] won’t be beaten in intensifying competition.”

What many people might not be aware of though is that China was close to the US in the 1960s when it came to early semiconductor technology – so close that it had a fighting chance of leading the industry. However, a combination of political upheaval and misguided industrial strategy has meant that after decades of effort, China still lags.

The story of China’s chip efforts goes back to the beginnings of the integrated circuit (IC).

The IC, a collection of electronic components built onto a single piece of semiconducting material, was invented in 1958 by a Texas Instruments engineer named Jack Kilby. Prior to its invention, engineers had to manually wire electronic components together for each device, with early computing machines taking up entire rooms.

Kilby’s integrated circuits solved this problem by enabling electronics to be miniaturised, reducing costs and allowing complex electronic equipment to be used in areas where weight and space are critical, such as in aircraft or space vehicles.

China was fully aware of the importance of mastering IC technology– in the absence of a consumer electronics industry, chips were seen as vital to national defence.

Over the years China had been misled by the idea that all it takes is equipment to produce a generation of semiconductor fabrication process technology
Jackson Hu, former chief executive at semiconductor foundry UMC

Just eight years after its invention and three years after the first ICs went to market in the US, China managed to create its own IC in 1965, placing the country ahead of would-be competitors like Taiwan and South Korea, neither of which had started developing a semiconductor industry at the time.

However, more than 50 years later, China now trails the US, South Korea and Taiwan in semiconductor technology.

After several decades and billions of dollars of investment, only 16 per cent of semiconductors used in China today are manufactured domestically. Last year, China imported US$312 billion worth of chips to meet domestic demand, exceeding the amount it spends on oil.

As trade war clouds continue to gather, Beijing has stepped up calls for self-sufficiency in core technologies like semiconductors, aiming to produce 40 per cent of the semiconductors it uses by 2020, and 70 per cent by 2025.

But in semiconductors, cutting-edge technology becomes obsolete every two years and analysts estimate that it may take China a decade before it is on par with rivals.

As such, some have suggested China should focus chip efforts on existing strength in artificial intelligence (AI) to develop AI chips, which are specifically designed to process data for AI applications.

But how did China squander its early efforts to be a big player in an industry now worth almost US$500 billion?

Interviews with industry experts and academics point towards a confluence of factors, including the upheaval of the Cultural Revolution and a consequential lack of human expertise, and initial misguided strategy.

“Over the years China had been misled by the idea that all it takes is equipment to produce a generation of semiconductor fabrication process technology,” said Jackson Hu, who helmed Taiwanese semiconductor foundry UMC as chief executive from 2003 to 2008. “They emphasised the importance of equipment investment, but the truth is that equipment is only one of the necessary conditions.”

In the early years, China simply did not have enough know-how to advance semiconductor manufacturing technologies, said Hu, who believes that China’s lack of talent and experience were the primary reasons for this.

“I started high school in 1967 in Taiwan, which was about the same time that the Cultural Revolution started,” said Hu in an interview. “So for the Chinese youngsters my age, they wasted 10 years of their life, and only when the revolution ended could they return to finish high school and then college.”

According to Hu this resulted in a lost generation of engineering talent for China while countries such as the US and Japan pushed ahead with semiconductor research and development. By 1978, two years after the Cultural Revolution had ended, Hu had already received his doctorate in computer science and started working in Silicon Valley, which by then had over 100 semiconductor companies.

This skills shortage stayed with China, even as the country opened up its economy and doubled down on efforts to boost its semiconductor industry in the 1990s with the 908 Project.

Under the 908 Project, the Chinese government spent 2 billion yuan - a small fortune in today’s money - to build a chip fabrication plant under state-owned Huajing Group, which was appointed as the “national champion” to help advance China’s semiconductor manufacturing.

Lucent Technologies was chosen as the primary foreign partner for the technology transfer project to Huajing, and the now-defunct US firm provided not just process technology but also a design library so that the Chinese firm could design its own chips, according to Paper Tigers, Hidden Dragons, a book on China’s electronic industry by Douglas Fuller, an associate professor at the City University of Hong Kong.

But despite Lucent’s help, the firm’s engineers did not know what products to design and the fab – short for fabrication plant – was empty because there was nothing to produce. The firm basically reverse-engineered designs that were already on the market. As such, the ambitious 908 Project was later regarded as a failure.

“Reverse engineering unfortunately does not lead to technological innovation,” said Monique Chu, a lecturer of Chinese politics at the University of Southampton and the author of the book The East Asian Computer Chip War. “The cultivation of human capital takes time, and developing indigenous technology doesn’t happen overnight.”

Despite an avalanche of money, China still does not have a significant portfolio of intellectual property in integrated circuits.

Back in the early 2000s and at the start of his career, Chinese chip designer Alex Chen joined a semiconductor company called Vimicro. The upstart was founded in 1999 in Beijing’s Zhongguancun by a Chinese scientist who had returned from Silicon Valley and whose venture was backed by the Chinese government.

Local media hailed Vimicro as the firm that would “end China’s chip-less history”. Things looked promising.

But Vimicro’s debut on the Nasdaq in 2005 did not go according to plan – the shares priced at just US$10, a tenth of the price Chen had expected. His dreams of financial independence vanished.

“It was then that I realised that China’s so-called, self-developed semiconductor technology was seen as low-end by the West,” said Chen, who subsequently gave up his stock options, resigned from Vimicro and left for Silicon Valley in search of better opportunities in advanced chip technology firms.

He now works for a leading US semiconductor firm, which was a major supplier to Huawei up until the recent US ban.

There was a bright spot when Shanghai-based Semiconductor Manufacturing International Corporation (SMIC) was founded in 2000.

The foundry was established by Richard Chang – now known as the “father of the Chinese semiconductor” – and it was then that China started to make significant strides in its semiconductor fabrication industry.

But by then, mainland China had already fallen behind South Korea and Taiwan. Taiwan Semiconductor Manufacturing Company (TSMC) – now the largest independent chip fabrication foundry in the world – was established in the late 1980s.

Today, TSMC is at the frontier of semiconductor process manufacturing technology. As an independent foundry, TSMC produces chips based on designs provided by its clients. At present, firms like TSMC and South Korea’s Samsung are already manufacturing 7-nanometer (nm, or one thousand-millionth of a metre) chips and planning a shift to 5nm technology.

Semiconductor technology generally follows Moore’s Law, which suggests that the number of transistors per square inch on an IC doubles every two years, meaning that chips become smaller but more powerful and efficient.

Despite being one of the world’s top five semiconductor foundries in the world, SMIC only began to produce 14nm semiconductors this year. That makes it three generations – or at least six years – behind its rivals.

In a renewed push, China in 2014 set up the China National Integrated Circuit Industry Investment Fund (also known as the Big Fund), raising 138.7 billion yuan for investment in China’s semiconductor firms. Investees of the Big Fund so far include SMIC, ZTE Microelectronics and Tsinghua Unigroup.
Professor Fuller remains sceptical of this state-led model though.

“There is a frenzy of building up fabs across China. But we need to ask whether these will all be viable,” said Fuller. “They will likely end up building too many with few qualified people to run them.”

China may be working hard to solve a problem that does not exist, according to Jimmy Goodrich, vice-president of global policy at the Semiconductor Industry Association in the US, a Washington DC-based trade group representing the voice of the US semiconductor industry.

According to Goodrich, China cannot – and should not be trying – to upend the global supply chain for semiconductors.

“Smartphones, laptops, PCs, TVs – a big proportion of these electronics are assembled in China. In reality, what is happening is that more than half of the semiconductors that come to China are re-exported for external trade,” says Goodrich. “So it is not accurate for some policymakers in China to say that there is a huge deficit in chips.”

AI chips could be the light at the end of the tunnel though for China.
Alibaba Group Holding, Baidu and Horizon Robotics are already researching and developing AI chipsets for use in everything from autonomous cars to internet of things devices, which are expected to take off with the advent of next-generation, ultra-fast 5G mobile networks. (Alibaba is the parent company of the South China Morning Post.)

The world’s most-populous nation has access to enormous quantities of data that technology firms use to train algorithms for machine learning, computer vision and natural language processing technologies. That in turn could help tech companies design chips that are optimised to carry out AI-specific tasks.

Moore’s Law is less relevant for AI chips as this technology depends more on the efficiency of the AI models that process the data rather than the power of the chip itself.

“Algorithm and standard setting are key factors in designing advanced [AI] chips, China should not be limited by much,” said former UMC executive Hu, pointing out Huawei’s leadership in 5G technologies.

“My understanding is that [Huawei has already built AI and 5G] IC chips faster than some US companies.”

Zen Soo and Meng Jing

• South China Morning Post.Published: 9:00pm, 28 Aug, 2019:
https://www.scmp.com/tech/big-tech/article/3024687/how-china-still-paying-price-squandering-its-chance-build-home-grown

This article appeared in the South China Morning Post print edition as: When the chips are down

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