China hopes to dominate chip market

Headlines coming out of the Semicon China trade show last week painted a picture of China's semiconductor industry growing fast, to the detriment of Taiwan.

"Construction costs in Shang-hai are 35 percent less expensive overall than those in Taiwan," the Electronic Business News Richard Chang (張汝京), president of Semiconductor Manufacturing International Corp (SMIC, 中芯國際集成電路) was quoted as saying at the event. "The water supply is 60 percent less expensive than Taiwan. Bulk gas costs are 30 percent lower than Taiwan."

Chang, the former chairman of Worldwide Semiconductor Manu-facturing Corp (世大半導體), also said Taiwan is unable to provide a consistent supply of electrical power to semiconductor manufacturers, a situation that has cost companies in the sector millions of dollars.

Over the past few years, China has made a point of developing its semiconductor industry, due in part to the fact only 14.5 percent of the nation's demand is filled by local producers.

China' government, according to reports out of Semicon China, is tackling the problem by backing investments totaling US$11 billion over the next few years. This should help in the five year construction project aimed at setting up six new 8-inch wafer manufacturing plants and two new 12-inch plants -- but that will still leave the country short of its goal of self-sufficiency.

Insiders say the country will only be able to supply 25 percent of its chip needs by 2005.

A report issued by Dataquest says China's chip consumption rose 35 percent last year, surpassing Taiwan for the first time. Demand in Taiwan grew only 30 percent last year.

The growth in chip demand was because of a growing telecommunications, and consumer electronics, communications equipment and personal computer industries.

In spite of the growing market, in Taiwan businessmen remain cautious about China.

"Our chairman, Morris Chang (張忠謀), has stated in public he doesn't think the economic and political situation is stable enough in China right now," said Guo Shan-shan (郭珊珊), spokeswoman at Taiwan Semiconductor Manu-facturing Co (TSMC, 台積電).

She said the company plans to hold off on making investments in China for at least 3 to 5 years, adding that the company still has land for expansion in Hsinchu (新竹) and Tainan (台南).

In a strongly worded statement earlier this year, the chairman of TSMC cited an unstable political environment and outright corruption as key reasons he planned the delay.

"Even if the [Taiwan] government suddenly became very cooperative and said `you can go [to China], you can do anything you want, you can build a 12-inch plant over there' ... I would not go to China," Chang said.

Another reason is the low level of technology in China's chip industry.