China will finance the domestic integrated circuit industry with 120 billion yuan (about US$19.2 billion) to boost its development, China Securities Journal reported on Wednesday, April 23.

The funds, which exceed the industry's aggregating investment in the past 10 years, is considered one step in reducing the country's reliance on imported chips, the core product for high-tech and manufacturing industries.

China will finance the domestic integrated circuit industry with 120 billion yuan (about US$19.2 billion) to boost its development. [guancha.cn]

According to the International Monetary Fund, the output of a 1-yuan chip can generate 10 yuan in electronic and information technology industries and 100 yuan in terms of Gross Domestic Product.

The overall integrated circuit industrial chain, including silicon wafer producing, packaging, testing, design and high-end application, surged last year, driven by the increasing demand for domestic smart phone manufacturers, such as Xiaomi and Huawei, which took up 20 percent of the global market in sales and remains in an upward trend this year. Meanwhile, the consumption of integrated circuit products on the Chinese mainland accounted for one third of the global market.

However, in spite of the growing figures, the industries have been greatly hampered by their overwhelming dependence on overseas supplies. According to the Chinese General Administration of Customs, imports of the integrated circuits last year reached US$232.2 billion, rising by 34.6 percent year-on-year. Meantime, trade deficits increased by US$5 billion yearly to US$144.1 billion, registering a consecutive growth over the course of four years. The import quota of the integrated circuit chips even took over those for crude oil, when the latter declined by 0.5 percent to US$ 219.6 billion in 2013.

The development of semiconductor and integrated circuit chips is a top priority as the central government will carry out a series of policies to support the industries, said Peng Hongbin, deputy department chief of the electronics department of the Ministry of Industry and Information Technology.

Peng made the remark at the China Semiconductor Market Annual Meeting (2014) and the 3rd China Integrated Circuit Industry Innovation Conference held by the Semiconductor Industry Association and China Center for Information Industry Development (CCIID) in Wuxi of Jiangsu Province, last month.

During the meeting, Peng revealed four prospects for the development of China's own integrated circuits manufacturing -- a long-term mechanism will be established between the central and local governments to coordinate their supporting policies; the bottlenecks that have long troubled the integrated circuits industry will be eventually broken down; the industries can resort to capital market and the governments will carry out policies to introduce more social funds in; innovation and joint-venture cooperation will be highly encouraged with policies designed to guarantee cooperation quality.

According to one anonymous industry insider, finance is the major problem that hinders the development of the integrated circuit industry in the country. "Investment in the industry totaled at more than 100 billion yuan in the previous 10 years, which accounts for only one sixth of the size of Intel Corporation," the insider said.

According to China Securities Journal, the government has completed the "Outline to Promote the Integrated Circuits Industry," a guideline to put an equal emphasis on both fiscal support and equity investment for the development of the industry. Among the 120-billion-yuan investment, about 40 million yuan will be distributed from fiscal revenue, while the rest will stem from social funds.

According to the industry insider, a number of state-owned enterprises, such as China Mobile and China Tobacco, in addition to several big chip package companies, will be the initial investors. "With the injection of the 120-billion-yuan investment, the gap between China and the developed countries in terms of integrated circuit funds will be narrowed," the insider said.

By this means, Chinese companies will eventually command core technologies and localized chips will be applied in cutting-edge industries such as cloud computing, the Internet of Things, big data and digital TV.

The localization of the chips is irreversible and the investment in the industry will grow exponentially, the insider concluded.

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