China Core | The Path to Breakthrough for Domestic Chips
The prolonged US-China rivalry continues to accelerate the semiconductor localization process in China. A growing number of Chinese mainland companies are entering the chip-making arena, with smartphone manufacturers, automotive companies, and even home appliance makers embarking on their "chip development journey".US sanctions against Huawei have spurred the development of domestic Chinese chip enterprises.Over the past two years, the US has taken four major actions against Huawei - not only discrediting Huawei's 5G communication equipment but also modifying chip restrictions to limit Huawei's access to 5G chips, directly impacting its smartphone business.However, every cloud has a silver lining. The US chip cutoff has not only affected Huawei's development but also significantly impacted domestic Chinese semiconductor companies, even triggering a major reshuffle in the global semiconductor market. Today, China's semiconductor industry has fully embraced self-research, and the "de-Americanization" process is accelerating.Chip shortages and substantial price hikes have made many companies realize that supply chains cannot be overly reliant on foreign sources. Instead, they should seek suitable domestic chip suppliers or develop chips independently, which presents both a challenge and a rare opportunity for domestic chip R&D manufacturers.
Challenges Facing Domestic Chip Companies?
01 Rapid Fragmentation of Chip CompaniesThe ongoing "chip shortage" wave continues to intensify, making "cross-border chip manufacturing" increasingly popular. In 2021, whether automotive companies, smartphone manufacturers, or internet giants, all successively plunged into the "chip-making" track. Even real estate, home appliance, retail, and cement companies directly crossed over into the technology sector to start chip development.This means too many chip company registrations could lead to capital fragmentation and talent shortages, dispersing investments in funds and human resources, since chip manufacturing is inherently capital, technology, and talent-intensive.02 Fragmented Talent in the Chip IndustryGiven the broader chip market environment, the emergence of numerous chip companies will inevitably lead to talent dispersion. The chip industry has begun an "involution-style" talent competition. According to the "2022 Talent Market Insights and Salary Guide", amid persistent chip shortages, salaries have risen across all functions. Notably, CPU/GPU leaders, heterogeneous computing experts, and AI chip R&D directors command annual salaries exceeding 2 million RMB; IC design engineers in integrated circuits and chief medical officers in biopharmaceuticals see the highest salary increases when job-hopping, up to 50%. It's common for innovative talents to be contacted by over 10 headhunters or employers simultaneously, holding 4-5 job offers.Companies are eager for talent, but high-end professionals remain exceptionally scarce, making recruitment and retention major challenges constraining innovative enterprise development.Domestic startup teams are gradually disappearing, replaced by numerous small chip-making "workshops." Moreover, many companies limited by startup capital lack their own "base" and rely on financing for survival. These outcomes are detrimental to further strengthening the semiconductor industry.
03 Competition for Funding Among Various Players
As widely known, the chip industry is extremely capital-intensive. Establishing a mature 14nm chip production line requires approximately $10 billion, leading many enterprises into a "funding competition." Since investment costs in chip manufacturing are substantially higher—not only capital-intensive and time-consuming but also with almost unrecoverable input costs—100 million RMB in funding can vanish without a trace. Even a large market share divided among many players makes it difficult for any single company to stand out.Most segments of the chip industry require over a decade of accumulation to show results. Influxes of capital cannot comprehensively enhance the industry's technology and competitiveness in the short term. Conversely, more companies are beginning to feel the strain of capital "overheating." With numerous domestic entrepreneurs emerging, competitors continuously lower prices to secure limited customers, repeatedly squeezing profit margins in the chip industry.04 Limited Technical Environment and Insufficient Local Production CapacityDue to China's late start in the chip industry, it holds almost no advantages in chip design and manufacturing, with inadequate local production capacity for monocrystalline silicon and auxiliary manufacturing materials. Coupled with technological monopolies and supply blockades from developed countries in Europe and America, which list key production materials and equipment on restricted lists, the stability of China's chip industry system is severely threatened.Chip technology requires lithography machines, whose patent technology is monopolized by ASML, a company significantly influenced by Europe and America. Under the backdrop of technological封鎖 against China, substantive technical exchanges with this company are challenging, making independent R&D of domestic lithography machines extremely difficult and unlikely to achieve breakthroughs in the short term. These objective factors render China's high-performance chips entirely dependent on imports, highlighting the "bottleneck" issue. Thus, enhancing the supply chain for key semiconductor raw and auxiliary materials is urgently needed.
How Can Domestic Chip Companies Break Through?
01 National Policy Support for the Chip Industry as Fundamental Political BackingAt a press conference in March 2021, the Ministry of Industry and Information Technology emphasized that the information society of the 21st century cannot be complete without the puzzle piece of integrated circuits. High-quality development of the chip industry is crucial for modern information industries and industrial chain development. Technological advances have achieved remarkable results, with significant progress in key processes, technologies, and materials over the past 20 years. Corporate comprehensive development capabilities continue to strengthen, giving rise to a group of new leading enterprises.The state has implemented a series of measures to enhance tax reductions for enterprises and foster talent reserves and cultivation, strengthening global cooperation. Integrating the industrial chain into the wave of globalization promotes virtuous industry cycles, not only supporting domestic independent information development but also providing robust support for the community with a shared future for mankind.Through adjustments in taxation, subsidies, and distribution, support for integrated circuit industrialization capabilities continues to strengthen, driving product technology upgrades, expanded scale effects, and reduced costs for chip companies, sending positive signals and better experiences to end consumers in the industrial chain, attracting more customers to purchase products containing China's self-developed chips, thereby forming internal and external virtuous cycles.Macro policies provide powerful, beneficial, and encouraging institutional guarantees for Chinese chip companies to explore product markets. They offer the strongest logistical support for Chinese chip companies to achieve standardized, orderly, branded, and sustainable strategic goals.02 Enhance Cultivation of Chip Industry Talent and Strengthen Support for "Production, Education, Research, and Application" IntegrationTalent is the cornerstone of high-tech industries. Improving the domestic integrated circuit talent cultivation mechanism, further strengthening cooperation among enterprises, universities, and research institutions, establishing specialized training bases, and dynamically adjusting teaching content and practical methods in close alignment with enterprise development and market demands are essential. Focus on cultivating senior, compound talents and promote close integration of production, education, and technological frontiers.Establish effective technological innovation incentive systems, recognize and reward top talents who have made outstanding contributions to integrated circuit development, stimulate talent innovation and creativity, and foster an environment of independent R&D and continuous innovation.Guided by major national integrated circuit needs, launch national large-scale scientific engineering research exploration plans, actively promote the high-end process of domestic chip design and manufacturing, and use point-to-area approaches to comprehensively enhance technical levels across all chip segments.03 Establish an Independent, Controllable, and Secure Domestic Chip Industry Chain and Supply SystemChina's chip industry chain remains relatively fragile. If any link in the supply chain breaks, it could lead to being "strangled," leaving the entire chip industry passive and even causing crises in national economic and social development.In the new development stage, to break free from the passive situation of being constrained in chip industry development, China must fully leverage cutting-edge technological achievements and advanced innovative applications formed by the new global technological revolution, steadily advancing the localization of key core equipment, design software, and critical materials in the chip industry chain.Additionally, actively build an independent and controllable chip industry chain and supply system to steadily increase the self-sufficiency rate of chips required by various domestic industries, enhancing the service capabilities of local upstream manufacturers to downstream sectors, increase customer stickiness, reduce the impact of market demand or supply changes on business operations, thereby improving collaboration between local integrated circuit upstream and downstream manufacturers, enabling local suppliers to possess certain industrial chain supporting service capabilities, reducing the likelihood of supply chain partial or total collapse when facing disruptive factors. Simultaneously, reduce dependence on chip technology and products from non-friendly countries, regions, and entities to achieve national self-reliance and strength in chip industry technology.
