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Nobunaga Chai, DIGITIMES Research, Taipei [Wednesday 3 August 2011]
During the 12th FYP period from 2011-2015, China's semiconductor industry policy will shift away from the pursuit of capacity and output value growth toward a focus on improving R&D capabilities and firms' global competitiveness. A policy of direct government investment will also be replaced by an emphasis on market mechanisms. This DIGITIMES Research Special Report provides comprehensive analyses of the government policies and industry dynamics that will shape China's related semiconductor industries over the next five years. Abstract 
During the 10th and 11th Five Year Plan (FYP) periods from 2001-2010, the China's government listed the semiconductor industry as one of the key industries to be supported.
Spurred on by State Council Rule 18 (2000), major China-based foundry firms such as SMIC, Hejian, Grace, and TSMC's Songjiang operations were founded during the 10th FYP period and began to rapidly expand capacity. The result was that output value for China's merchant foundry industry grew from CNY3.6 billion in 2001 to CNY22.1 billion in 2010, representing an annual compound growth rate of 21%. With this, China's IC manufacturing firms truly took off and entered a period of growth.
While the output value of China's semiconductor industry grew significantly during the 10th and 11th FYP periods, the industry's overall level of competitiveness remained weak. During the 12th FYP period from 2011-2015, China's semiconductor industry policy will shift the emphasis for development away from the pursuit of capacity and output value growth, towards a focus on improving R&D capabilities for advanced technology and advanced capacity. The government's earlier method of pouring funds directly into the industry will also be replaced by an emphasis on strengthening the operations of market mechanisms, in order to foster a group of semiconductor firms with global market share and the capacity for technological innovation.
China's policies on semiconductor development during the 12th FYP period include the Outline of the 12th Five Year Plan for National Economic and Social Development, State Council Rule 32 (2010), the six major measures to develop the software and semiconductor industries, and State Council Rule 4 (2011).
Besides affirming the semiconductor industry as one link in efforts to build infrastructure for next generation IT within the strategy for seven new major strategic industries, these plans also confirmed that semiconductor firms that met the appropriate conditions would be eligible to receive government support; moreover, the government would work to strengthen the industry's capacity for independent technological innovation through a raft of measures to reform tax incentive policy, as well as to improve the function of financial markets.
This report also provides forecasts and analysis regarding the prospects for merchant foundry firms such as SMIC, Huahong NEC, Grace, Huali Microelectronics (HLMC), Jiangsu Changjiang (JCET), Nantong Fujitsu Microelectronics (NFME), Spreadtrum and HiSense, as well as for leading package testing and IC design firms, during the 12th FYP period.
The report concludes with projections and analyses on the prospects for the IC manufacturing and IC design industries in China under the influence of the new semiconductor industry polices of the 12th FYP during the 2011-2015 period.
Table of contents Evolution of China's semiconductor industry leading up to 12th Five Year Plan Development of the China semiconductor industry prior to the 10th Five Year Plan Semiconductor industry policy in the 10th and 11th FYPs Chart 1: Policy direction and objectives in the 10th and 11th FYPs Chart 2: Policy to support semiconductor industry development in the 10th and 11th FYPs Chart 3: Chinese government subsidies to SMIC, 2002-2009 (US$k) Development of China's semiconductor industry during the 10th and 11th FYPs Economic situation Chart 4: Output value of China IC design industry, 2001-2010 (CNYm) Chart 5: China's GDP, 2001-2010 (CNYb) Chart 6: Urban per capita disposable income and rural per capita net income in China, 2000-2010 (CNY) China merchant foundry industry Chart 7: Initial establishment of merchant foundries in China, by company Chart 8: Capacity for China's major merchant foundry firms, 1992-2011 Table 1: China-based merchant foundry firms' monthly capacity and process technologies, 4Q10 Chart 9: Technological progress comparison between TSMC, UMC, SMIC and Grace, 2003-2010 China semiconductor assembly and testing services (SATS) industry Chart 10: NFME and CJET's revenues and share of China SATS industry output value, 2006-2010 (CNYm) Chart 11: R&D progress and future plans for China's major specialist SATS firms, 2000-2010 China IC design industry Chart 12: Number of China-based IC design firms, 2000-2009 Chart 13: Output value for the China IC design industry, 2006-2010 (CNYb) Chart 14: IC design share of China IC industry output value, 2006-2010 Chart 15: China share of global IC design industry output value, 2006-2010 Table 2: China's Top 10 IC design firms, 2010 (CNYb) Status of China's semiconductor industry after the 11th FYP period Chart 16: China merchant foundry industry output value, 2001-2010 (CNYm) Chart 17: China SATS industry output value, 2001-2010 (CNYb) Chart 18: China semiconductor industry output value, 2001-2010 (CNYm) Chart 19: China semiconductor industry output value share of IC design, merchant foundry and SATS segments, 2001-2010 ICT industry clusters in China Bohai Rim Yangtze River Delta Pearl River Delta The Western Triangle Chart 20: China output value share, by ICT industry cluster Semiconductor industry clusters in China Chart 21: Distribution of output value and companies in semiconductor industry clusters Bohai Rim region Chart 22: Status of semiconductor industry clusters in the Bohai Rim region Yangtze River Delta region Chart 23: Status of semiconductor industry clusters in the Yangtze River Delta region Pearl River Delta region Chart 24: Status of semiconductor industry clusters in the Pearl River Delta region Western Triangle region Chart 25: Status of semiconductor industry clusters in the Western Triangle region Conclusion Key semiconductor policies of the 12th Five Year Plan Chart 26: Major policies to promote development of the China semiconductor industry during the 12th FYP period Provisions of the 12th FYP and associated policies affecting the semiconductor industry State Council Rule 32 (2010) Chart 27: Seven major strategic new industries in State Council Rule 32 (2010) Chart 28: Policies to support the seven strategic new industries in State Council Rule 32 (2010) Chart 29: State Council Rule 32 (2010) seeks to improve access to financing and fundraising channels for China semiconductor companies Outline Plan for National Economic and Social Development Chart 30: Policy directions and shifts in the 12th FYP Chart 31: SMIC revenues and share of total China revenues, 2007-2010 Chart 32: Policy directions to support the semiconductor industry in the 12th FYP State Council's six major measures to develop the software and semiconductor industries Table 3: State Council's six major measures to develop the software and semiconductor industries, announced on January 12, 2011 Chart 33: State Council's 6 policies to encourage semiconductor industry development, announced January 12, 2011 State Council Rule 4 (2011) Chart 34: Policy objectives and policy directions to support the industry in State Council Rule 4 (2011) Table 4: Comparison of tax incentives for China-based semiconductor firms in State Council Rule 18 (2000) and Rule 4 (2011) Chart 35: Effects of the tax incentives in State Council Rule 4 (2011) on the China semiconductor industry Chart 36: Content and effects of investment financing policy for China-based semiconductor firms in State Council Rule 4 (2011) Analysis of 12th FYP policies on the IC manufacturing industry Increasing and accelerating the concentration of the industry Continuing to increase the number of firms through fundraising from securities market listings Chart 37: Two major trends in the development of the China IC manufacturing industry arising from policies during the 12th FYP period Chart 38: The opening up and reform of financial markets will be a crucial factor in promoting growth in the China semiconductor industry during the 12th FYP period Analysis of 12th FYP policies on the IC design industry Trend 1: Marked increase in the number of IC design firms Chart 39: Financing/fundraising policy for IC design firms in State Council Rule 32 (2010) Chart 40: IPO performance of representative China-based IC design firms during 2010 ¡V national technology (CNY/share) Chart 41: Forecast for the number of China IC design firms during the 12th FYP period (number of firms) Trend 2: The degree of concentration among IC design firms continues to increase; Chart 42: State Council Rule 4 (2011) - Policy objectives to support the IC design industry Chart 43: State Council Rule 4 (2011) - Tax incentives for IC design firms Chart 44: Industrial concentration for China's ten largest IC design firms during the 12th FYP period Trend 3: Mobile communications applications are at the heart of the development of next generation chip technology Chart 45: State Council Rule 32 (2010): Key areas of next generation IT Chart 46: China IC design firms' current activities in the mobile sector Chart 47: Branded products using IC solutions from China-based IC design firms Major semiconductor players during the 12th FYP period Semiconductor manufacturing firms SMIC Chart 48: SMIC 8-inch and 12-inch wafer capacity, 2Q08-1Q11 (8-inch equivalent Kpcs) Chart 49: SMIC revenue breakdown by geographic region, 2002-2010 (m US$) Chart 50: SMIC revenue share by manufacturing process, 1Q09-1Q11 Chart 51: SMIC revenues and net profits, 2001-2010 (US$m) Chart 52: Changes in SMIC's equity structure, 2004-2011 (m shares/%) Chart 53: Government policy support and targets for SMIC during the 10th to 12th FYP periods Hua Hong NEC, Grace and HLMC Chart 54: Technology roadmap for Grace, Hua Hong NEC and HLMC, 1Q11-4Q12 Chart 55: HLMC's locations and future factory site plans Chart 56: Mergers between major manufacturers such as Grace, Hua Hong NEC and HLMC are a long-term goal in the 12th FYP Jiangsu Changjiang Electronics Technology (JCET) and Nantong Fujitsu Microelectronics (NFME) Chart 57: Revenues and EPS for JCET and NFME, 2005-2010 (CNYm/CNY) Chart 58: Subsidies for SATS firms and associated equipment manufacturers in China's Project 02 IC design firms State of operations for China's main IC design firms Table 5: 2010 rankings of China's Top 10 IC design firms (CNYb) Product structure of the China IC design industry Table 6: Market share and rankings for China's Top 10 IC design firms, 2006 and 2010 (% of China IC design industry) Secondary industries with a rising share of output value Chart 59: Product launch schedules for baseband IC firms in the Greater China region, 2009-2011 Secondary industries with a declining share of output value Chart 60: Ranking of Top 10 China IC design firms, in secondary industries with declining output value share, 2006-2010 Secondary industries with mixed performance Chart 61: Rankings of China's Top 10 IC design firms, secondary industries with mixed performance, 2006-2010 China semiconductor industry forecast during the 12th FYP period China IC manufacturing Trend 1: The concentration of the merchant foundry industry continues to increase Chart 62: China-based merchant foundry quarterly capacity, 2010-2015 (k units 8-inch equivalent) Trend 2: China's government will continue to increase its stake in the leading foundry firms Chart 63: Quarterly capacity for major merchant foundry firms in the Greater China region (k units 8-inch equivalent) Chart 64: Tax incentives and other fundraising channels for the China semiconductor industy during the 12th FYP period Trend 3: IC manufacturing will continue to decline as a share of output value for the China semiconductor industry as a whole Chart 65: Output value for China's SATS and merchant foundry industries, 2005-2015 (CNYb) Chart 66: SATS, merchant foundry and IC design industries as a proportion of overall output value for the China semiconductor industry, 2005, 2015 Outlook for the China IC design industry during the 12th FYP period Chart 67: China IC design industry output value during the 12th FYP period (CNYb) IC design as a share of overall output value for the China IC industry Chart 68: IC design industry's share of output value for the China IC industry as a whole during the 12th FYP period Global position of the China IC design industry Chart 69: China IC design industry as a proportion of global IC design industry output value during the 12th FYP period
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