Samsung's $7 billion vote of confidence

Groundbreaking on the new $7 billion Samsung Electronics NAND flash memory plant in Shaanxi province's capital Xi'an on Sept 12 heralded western China's biggest foreign investment and Samsung's largest in the country.

It is also the company's biggest overseas investment in chip manufacturing.

Xi'an beat out Beijing and Chongqing as home of the company's second semiconductor plant outside Korea. The IT giant built its first overseas plant in Austin, Texas 16 years ago.

Related reading: Samsung launches $7b Xi'an high-tech factory

Chongqing and Sichuan province's capital Chengdu have been competing with Xi'an to become the commercial hub of the country's underdeveloped western regions, especially in the IT sector.

"The move is sort of unheard of before at Samsung, not only in the scale of investment but also in the technology we would like to transfer to the Chinese side," Kwon Oh-hyun, Samsung's semiconductor device solution unit's vice-chairman, told China Daily earlier.

"We expect to create a miracle here."

After it becomes operational at the end of 2013, the factory in the Xi'an High-tech Industrial Development Zone is designed to produce 100,000 10-nano-level chips used for high-speed and large-density data storage each month. It is expected to generate 66 billion yuan ($10.4 billion) in annual sales.

"Xi'an wasn't even on the list at the beginning," Kwon said."(The local government's) great enthusiasm was so impressive that it triggered our decisions."

Advantages

Senior Samsung Vice-President Kim Yong-kwan agreed that Xi'an offered more advantages than other potential sites.

"Power and water supplies, as well as wastewater treatment in Xi'an, are some 20-30 percent cheaper than in other cities," Kim said.

"And its labor costs are around 40 percent cheaper. Such cost advantages are very important."

The factory's first phase will cover 448,000 square meters, which is projected to grow to 1.1 million sq m at build out.

Samsung also believes Xi'an offers an exceptional talent pool.

The city is home to nearly 100 universities and colleges, and about 100 research institutes, roughly 50 of which specialize in IT. They produce more than 17,000 graduates with IT majors every year.

Samsung plans to forge relationships with those local universities. It signed an agreement with Xi'an's Northwestern Polytechnical University the day before the factory's groundbreaking that included the establishment of the China Samsung scholarship for graduates who excel in the IT field.

It also hopes to expand cooperation with local institutions of higher learning to include exchanges bringing Chinese students from Xi'an's universities to schools in Korea.

The advantages Xi'an offered made the city the best option for Samsung, which is looking to expand its presence in the Chinese market, the company said.

The IT titan is doing so at a time of fierce competition in the sector.

"The new Samsung China Semiconductor Fab (fabrication plant) will lay a solid foundation for continued supply of leading memory components, enabling Samsung to further spearhead the advancement of the IT industry and enhanced user experiences," Kwon said at the groundbreaking ceremony.

The event had 600 participants in attendance including government dignitaries from China and South Korean Ambassador to China Kyu Hyung Lee.

"The new Xi'an production facility will help balance Samsung's global production network," the company said in a statement released at the groundbreaking.

"Reinforcing the company's support for its customers worldwide, the China facility will improve Samsung's global supply chain, making it easier for many of its customers to expand in the region."

About half of the NAND flash memory chips produced globally were sold in China in 2011, accounting for $29 billion in sales. IT advisory Gartner expects the figure will rise to 55 percent within three years.

There are already more than 2,600 IT enterprises in Xi'an. The city's high-tech zone already hosts such big names as GE, Ericsson and Applied Materials.

Xi'an Mayor Dong Jun said the completion of the Samsung project will bring the city's IT scale up to 300 billion yuan by 2015.

The city government hopes the project will boost employment and lift its economy, which has lagged behind Chongqing and Chengdu in western China.

Samsung estimates the completion of the project's first phase will create 10,000 jobs including those in support businesses.

Shaanxi Executive Deputy-Governor Lou Qinjian said the Samsung plant will lure more than 160 support companies to the hi-tech zone.

"Samsung's selection of the project site in Xi'an will make the urban competitiveness of Xi'an and the bearing capacity of high-end industries stronger and stronger," the high-tech zone said in a statement.

"We will continue concerted cooperation with Samsung Electronics to fulfill win-win benefits and jointly create a highland for the IT industries of a new generation."

To this end, the high-tech zone provided the land and infrastructure for the project for free.

"With the Samsung project, Xi'an will make great strides in the development of its IT industry," Xi'an Mayor Dong said.

Samsung's investment in Xi'an's high-tech zone is viewed as a landmark event in the go-west campaign launched by the central government in 1999. The campaign is designed to accelerate development in China's westernmost 12 provinces and autonomous regions, and Chongqing municipality, which have long lagged behind development in the east of the country.