Clearing China's semiconductor bottleneck

The State Council, China's Cabinet, recently issued a document aimed at improving the development environment for integrated circuit and software industries, deepening international cooperation and boosting industrial innovation capacity and development quality.

Among the measures to be introduced, the income tax exemption and value-added tax preferential policies for enterprises are eye-catching.

Although China is the world's largest chip consumer, it is yet to build its own complete semiconductor industry. As a result, it has long suffered because of equipment and technology blockades by the West. It has not done enough to develop its own technology because in a globalized era, it is more convenient to import products.

However, the practice faces a huge challenge with the emergence of an anti-globalization wave. The man-made disruption of industrial chains by a certain country underlines the need for China to clear the bottleneck, especially in the field of semiconductors.

In the past two years, because of the risk of supply chains being disrupted, many local governments in China have gravitated toward the field of semiconductors. However, some local governments underestimated the challenge of meeting capital, talent and technology requirements, and their scattered distribution and waste of resources have hampered the industry's development.

This underscores the need for top-level design and long-term planning for the development of the semiconductor industry.

The pressing problem before China is that it cannot meet the manufacturing requirement for chips, mainly because of the lack of advanced lithography machines and related equipment.

Therefore, it is necessary for China to independently manufacture these and fix the industrial chain for equipment, materials and software needed to develop the semiconductor industry.

What China lacks in this field is long-term technological accumulation. However, long-term technological accumulation does not always bring enterprises economic returns. So, the country should integrate resources to achieve technological breakthroughs. Technological innovation should be carried out through institutional innovation and national resource integration, but the government should not completely dominate the process. Instead, the government should respect the laws of industry and the market, and give full play to the market.

Apart from clearing technological bottlenecks, it is also important for the country to build an all-round semiconductor ecosystem in the upstream and downstream industrial chain, to promote its coordinated development through institutional innovation.

With the advent of the 5G era, the internet of things, artificial intelligence, cloud computing, and other technologies will see explosive growth, creating huge application opportunities for China's semiconductor industry. The plight of China's semiconductor industry is temporary and the country will be able to break through the technical threshold and promote the integrated high-end development of the industrial chain.