Several people who have worked in China's electronics industry for decades pointed out that this is the first time in 64 years that the Prime Minister specifically mentioned such details as integrated circuits in his report. This carries a lot of weight and inspires hope in China's semiconductor industry.
All the same, it's still possible that China's "one trillion RMB" (roughly US$150 billion) investment in the semiconductor industry over the next 10 years turns out to be pie-in-the-sky. It could fizzle, or worse, blow up in the face of China's local governments, if not carefully planned and articulated with clarity and transparency.
What if China buys Imagination?
To start, more discussion will be needed as to how the investment funds will be created and where the money will be funneled. More important, figuring out how best to use the money to trigger "multiple" financial benefits in the Chinese electronics industry will be critical, an industry official based in Beijing, who spoke on the condition of anonymity, told EE Times.
It's one thing to invest in a fabless chip company in China in hopes of creating a globally competitive player in a segment of the electronics market. But, said the source, what if China's private fund decided to use the government's investment money to acquire a Western company possessed with key intellectual property, such as the UK's Imagination Technologies?
Hypothetically speaking, he said, Imagination would become a Chinese company, its MIPS roadmap aligned with China's supercomputers (which are based on MIPS cores) and with that of Beijing-based fabless chip company Ingenic (whose platform is also based on MIPS). In this dream scenario, China would build a new ecosystem that eventually rivals ARM in Cambridge, thus triggering multiple impacts on China's electronics market.
This is the sort of provocative thinking not often associated with Beijing.
Perhaps even more important is for China to design the whole investment process with more rigor, discipline, and transparency.
One Shanghai-based fabless chip company CEO asked, "Remember the subprime mortgage crisis in China triggered by a 4 trillion RMB stimulus package?"
Just to recap, the government's pursuit in 2008 of a 4 trillion RMB ($645 billion) stimulus package pushed local governments' debt levels sky-high.
The National People's Congress budget report issued in 2013 said principal repayment of local government bonds in 2012 totaled 200 billion RMB. Some experts say that, even based on conservative estimates, local government debt may now exceed 12 trillion RMB.
Caixin, a Beijing-based media group dedicated to financial and business news, reported last year:
This debt is worrying not only because of its size. Worse, it is not transparent and we don't know how it will be handled. Particularly of concern is the tendency of Chinese officials to let political expediency override economic sense.
The extent of the risk from local government debt has been a topic of hot debate. When, where and how it may destabilize the system is in fact hard to predict, given the opacity of government operations. Some analysts are worried about the sluggish growth of government revenues.
Meanwhile, many people both in and outside the government say that the risk of default is low because the central government would pick up the pieces if things go wrong. This view is mistaken. The central government isn't obliged to guarantee local government debt.
How local governments manage the anticipated investment money is a source of a concern. Signs of a slowdown in China's economy are also worrisome.
As a member of World Trade Organization since 2001, China also needs to be mindful that any investments in specific companies aren't seen as protectionist subsidies.
A few executives in Shanghai suggested that providing investment in the form of research grants to national labs or industry institutes might be a more internationally acceptable way to divvy up the swag.
Next page: What happened to EC's plan?