China's independent integrated circuit industry chain is gradually taking shape

　　At a time when the United States is taking unconventional measures to contain Chinese integrated circuit companies, it is of great strategic significance for China to accelerate independent chip research and development and improve the self-sufficiency rate of core technologies and key equipment. Overall, the United States still occupies a dominant position in the integrated circuit industry chain, and there is a significant gap between China and it. In the field of chip design and related software tools, China has made some breakthroughs; the manufacturing and packaging and testing of chips are accelerating to China, especially the packaging and testing and related equipment manufacturing, which is the field closest to the world's advanced level in China; in terms of silicon wafer materials, China has currently solved the problem of "from scratch", but the localization rate is still very low. Overall, China's independent integrated circuit industry chain is taking shape, and some local innovations have reached the world's leading level, but it is still subject to others in some key technologies and key materials and equipment, such as high-end lithography machines, chip design tools and software, and the supply of high-purity silicon. China has obvious shortcomings.

　　1. Development of China's integrated circuit industry

　　1. Overview of the development of the global integrated circuit industry

　　According to data from the World Semiconductor Trade Statistics (WSTS), in 2018, the total sales of the global integrated circuit industry was US$468.8 billion, a year-on-year increase of 13.7%. The growth rate of the global integrated circuit industry was more than three times the average growth rate of global GDP, making it an important source of power driving global economic growth. It is expected to maintain a high growth trend in the future.

　　From the perspective of regional markets, China, South Korea, the United States, Europe, and Japan have become the main markets for the global semiconductor industry. According to WSTS statistics, in 2018, the sales of the Chinese mainland market reached US$158.4 billion, a year-on-year increase of 6.1%; the sales of the Korean market reached US$114.7 billion, a growth rate of 24.3%; the sales of the US semiconductor market were US$103 billion, a year-on-year increase of 16.4%; the sales of the European semiconductor market reached US$43 billion, a year-on-year increase of 12.1%; the sales of the Japanese semiconductor market reached US$40 billion, a year-on-year increase of 9.2%, and the sales of the Korean market reached 114.7 billion yuan, a growth rate of 24.3%.

　　From the perspective of trade, due to differences in technological advantages and market capacity among countries, the global semiconductor industry market has seen significant differentiation in trade, and China's trade deficit is particularly severe. According to WTO statistics, in 2017, the total import value of integrated circuit products in the world was approximately US$960 billion, accounting for approximately 5.3% of the total import value of global goods trade; the total export value of integrated circuits was approximately US$808.8 billion, accounting for approximately 4.0% of the total export value of global goods trade. Integrated circuit products have become the largest import and export commodity in many countries or regions around the world, such as mainland China, Hong Kong, China, Taiwan, China, and South Korea. From the perspective of net exports, mainland China is the region with the largest trade deficit in the global semiconductor industry, with a trade deficit of US$201 billion in 2017. The United States, the European Union, and Hong Kong, China had a small trade deficit, while South Korea, Malaysia, Taiwan, China, Japan, Singapore, etc. had a trade surplus.

　　Figure 1 Import and export of major trading countries in the global semiconductor industry in 2017

　　Data source: World Trade Organization

　　Equipment is extremely critical to the development of the integrated circuit industry. According to SEMI statistics, global semiconductor equipment sales reached US$62.1 billion in 2018, an increase of 9.7% from US$56.6 billion in 2017. As the birthplace of the semiconductor industry, the United States is still the global leader in integrated circuit industry equipment, accounting for about 47% of the global market share. And from the supply and demand of the integrated circuit industry equipment in the United States, its main equipment is for export. According to statistics from the U.S. Department of Commerce, 84% of semiconductor manufacturing equipment is sold outside the United States.

　　2. Overview of the Development of China’s Integrated Circuit Industry

　　According to a research report by the Ministry of Industry and Information Technology, China has become the world's largest and fastest-growing integrated circuit market, with a market size that continues to expand and maintain an average annual growth rate of more than 20%. According to statistics from the China Semiconductor Industry Association, in 2018, China's integrated circuit industry sales reached 653.2 billion yuan, a year-on-year increase of 20.7%. From the perspective of imports and exports, although the growth rate has fluctuated in the short term, it has generally maintained a growth trend, and the trade deficit has continued to expand.

　　In 2018, mainland China's imports reached US$312.06 billion, a year-on-year increase of 19.8%; exports reached US$84.646 billion, an increase of 26.6%. The trade deficit in integrated circuits further expanded to US$227.4 billion, an increase of 17.7% over 2017.

　　Figure 2 China's integrated circuit market growth and import and export situation from 2013 to 2018

　　Data source: China Semiconductor Industry Association.

　　From the perspective of the internal structure of China's integrated circuit industry, the design industry, manufacturing industry and packaging industry all maintained a high growth rate, among which the growth rate of the design industry and manufacturing industry exceeded that of the packaging industry. In 2018, the sales of the design industry were 251.93 billion yuan, an increase of 211.49% from 80.88 billion yuan in 2013; the sales of the manufacturing industry increased from 60.086 billion yuan to 181.82 billion yuan, an increase of 202.60%; the packaging industry increased from 109.885 billion yuan to 209.39 billion yuan, an increase of 99.65%. However, this situation does not indicate that the competitiveness of China's integrated circuit industry in the design and manufacturing links has been improved. The proportion of foreign-funded enterprises in these two links is relatively high. In 2017, four of the top 10 chip design and manufacturing companies in mainland China were foreign-funded enterprises, and the market share of these four companies reached 40%.

　　Figure 3 Changes in sales of China's integrated circuit industry segments from 2013 to 2018

　　Data source: China Semiconductor Industry Association.

　　From the perspective of the overall competitiveness of China's integrated circuit products, the market share of Chinese products continues to grow, but the value-added capacity of the value chain needs to be further improved. From 2013 to 2018, the import volume of the integrated circuit industry increased from 266.31 billion pieces to 417.57 billion pieces, and the average price dropped from US$0.869 per piece to US$0.747 per piece, a decrease of 14%; the export volume increased from 142.67 billion pieces to 217.1 billion pieces, and the average price dropped from US$0.651 per piece to US$0.390 per piece, a decrease of 36.6%; the import and export unit price difference (export unit price minus import unit price) increased from US$0.254 per piece to US$0.357 per piece. Although both import and export volumes have maintained rapid growth, the import and export price difference has continued to widen against the background of continued price cuts for chips, reflecting the real dilemma of the overall competitiveness of China's integrated circuit industry.

　　Figure 4 Comparison of import and export unit prices of China's integrated circuit products from 2013 to 2018

　　Data source: China Semiconductor Industry Association.

　　2. China’s competitive position in each link of the integrated circuit industry chain

　　The integrated circuit industry chain includes vertical design technology licensing, chip design, chip manufacturing and packaging testing, as well as the supply of important supporting materials and equipment. The United States has a dominant position in the key links of the industry chain. Even if some technologies are transferred and spread to Japan, South Korea and Taiwan, the United States still has the right to speak and control over technology. It is expected that the United States will continue to maintain its dominant position in the chip industry chain for a considerable period of time in the future.

　　But it should also be noted that with the support of major national science and technology projects and the National Integrated Circuit Industry Investment Fund, China's chip industry has made some major achievements, and the integrated circuit industry is accelerating its transfer to China. However, due to the high technology and capital intensive characteristics of the integrated circuit industry, China's technological catch-up in this field cannot be achieved overnight. There is no shortcut except to steadily promote independent technology research and development.

　　Due to the existence of technical barriers and investment barriers, the market concentration of key links in the integrated circuit industry is relatively high. The gap in scale and technology level between key enterprises in various countries directly reflects the competitive situation of various countries in specific links of the integrated circuit industry. By analyzing the gap between Chinese enterprises and the world's advanced level in the integrated circuit industry chain, we can understand China's competitive position in various links of the integrated circuit industry chain (as shown in Figure 5).