At the Semicon China 2001 trade show in Beijing, government officials and business leaders described aggressive plans to surpass political rival Taiwan and other Asia-Pacific countries as the premier location for IC design, silicon foundry services, chip packaging and test.

China's official blueprint, dubbed the "Tenth Five-Year Plan," calls for the nation to build about 25 new and advanced fabs between 2001 to 2005, including 8-inch and 300-mm wafer-processing plants. The country's new plan also aims to build at least one 6-inch diameter gallium-arsenide (GaAs) wafer fab and a massive IC design center.

The multi-billion-dollar plan calls for the nation to develop a competitive chip industry in two major locations: Beijing and Shanghai. To do that, each location is providing a slew of incentives for domestic and foreign investors, including tax holidays, low-interest loans, as well as land and utilities at virtually no cost.

But it remains unclear if the mainland China chip industry can fulfill its goals. After all, government programs and business plans have targeted major advancements in China's chip industry during the past 30 years, but most of those efforts have failed on most fronts in the past couple of decades.

Even top Chinese government officials and local business leaders acknowledge that the nation faces major challenges to achieve its lofty goals in the semiconductor industry this time around.

"Relatively speaking, China is behind in semiconductor technology," observed Rong Ling Chen, deputy general manager of Applied Materials Inc.'s China subsidiary based in Tianjin. "Compared to Taiwan and Singapore, China is just starting to develop its industry," said Chen in an interview with SBN at the Semicon China 2001 show this week.

But government and business leaders are also quick say that they believe China has finally found the right--and somewhat ironic--formula for success. A major new twist in that formula is the utilization of talent, management skills, and funds from rival Taiwan. In fact, three of China's six major chip ventures are now run by Taiwanese executives.

And ironically, China appears to be borrowing blueprints from Morris Chang, who is considered the father and chief architect of Taiwan's highly-successful semiconductor industry. Chang is also widely credited for pioneering the pure-play silicon foundry model. After a long career at Texas Instruments Inc., Chang moved to Taiwan in the 1980s and took a key role in defining the island's position in the global chip industry by launching Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC)--the world's largest silicon foundry.

Equally important, Taiwan has also been able to develop its infrastructure for chip manufacturing, including photomask shops, silicon wafer material plants, IC packaging facilities, and testing houses. The island is also a powerhouse in PC assembly, and it has positioned itself as a major player in cellular-phone manufacturing.

Taiwan connection

China is also moving full-speed ahead into the foundry and chip-packaging industries, thanks in part to a lot of help from Taiwanese management and funding. But business leaders from Taiwan want to portray their activities in China as more than an extension to their successful strategies on the island.

"We're a U.S. company," insisted Richard Chang, president and chief executive officer of Semiconductor Manufacturing International Corp. (SMIC). The company is racing to set up an 8-inch fab in Shanghai to provide foundry services later this year (see March 28 story). Chang, a former TI executive who hails from Taiwan, sees his new company as being more American than one directly connected back to Taiwan and its semiconductor industry. In fact, many of SMIC's executives are former TI managers from around the world, including the U.S. and Europe.

But observers are quick to note that Chang is also bringing in his experiences from his last company--Worldwide Semiconductor Manufacturing Co. Ltd. (WSMC), which was Taiwan's third largest silicon foundry company before it was acquire by TSMC last year.

While China has the potential to become a regional powerhouse in semiconductors, it still has a long way to go before challenging Taiwan and Singapore. First, China is lagging in process technologies, IC design capabilities, and other critical areas, acknowledged Zheng Minzheng, vice director of the electronics and information products at the country's Ministry of Information Industry (MII). The MII body sets the electronics industry policy in China.

Another problem facing China is that it is restricted from having advanced chip technologies for ICs below 0.25-micron design rules under U.S. export laws that protect lithography processes and scanner tools.

China is pressing the U.S. government to relax the lithography-tool export laws, but it is unclear if or when that will happen, Zheng told SBN at the Beijing show.

The communist nation also faces a credibility problem after experiencing several false starts in the chip business. Its own chip industry emerged in the 1960s with help from the former Soviet Union. Most early fabs were geared for military semiconductors. In the early 1990s, China attempted to revitalize its lagging chip industry by striking joint ventures between state-run enterprises and the likes of Alcatel, Philips, Siemens, Toshiba, and other multinationals.

Each of these joint ventures ran 6-inch wafer fabs capable of producing ICs with 1.0-to-0.8-micron feature sizes. These companies included Advanced Semiconductor Manufacturing Corp. (ASMC), Shanghai Belling, and Wuxi-Huajing. But overall, these struggling ventures failed to propel China into global commercial chip markets, note many industry observers.

New game plan

But now the country is ready to take another shot at being a player in new markets. During this week's Semicon China show, government officials outlined a strategy for jumpstarting the country's chip industry once again. Many of the key projects are based in Beijing and Shanghai.

In Beijing, China hopes to develop "five to eight" 8-inch production lines by 2005, said Feng Hai, deputy director of economics for the Beijing municipal government. By 2010, Beijing hopes to have "10 high-level" production lines, including both 8-inch and 12-inch (300-mm) fabs, Feng said during a presentation at the Semicon China trade show.

At present, Beijing boasts two major chip makers--Beijing Huaxia Semiconductor Manufacturing Co. Ltd. (HSMC) and Shougang NEC Electronics Co. Ltd.

In the mid-90s, Shougang NEC built a 6-inch wafer fab for use in making DRAMs and providing foundry services. The company--a joint venture between Japan's NEC Corp. and China's Shougang Group, will shortly break ground on an 8-inch fab as well.

HSMC is a newer company backed by Shougang and some U.S. investors. The company plans to break ground will shortly break ground on its initial fab.

There are some other major projects in Beijing. They include: