Motorola is launching a chip plant in China next year. Intel Corp is quadrupling its flash memory assembly plant in Shanghai. Equipment maker Applied Materials just opened a huge sales and marketing office in that city while foundry behemoth Taiwan Semiconductor Manufacturing Corp (
The race is on for a piece of the semiconductor market pie in the world's most populous country as chipmakers and equipment companies position themselves for what could arguably be the next promised land for the industry.
And while many experts agree the Chinese chip market could be immensely lucrative, some fear sudden growth of the semiconductor industry there would cause a glut in the global market. "Almost every company has to have a strategy for China whether they go into China or not ... because it's going to be such a big market," said Jim Morgan, chairman and chief executive officer of Applied Materials after returning from Shanghai last week.
The Santa Clara, California chip equipment maker a week earlier opened a huge sales office, with room to grow, in Shanghai which will double as a training facility for its customers' engineers.
Morgan, who three years ago served on then-president Bill Clinton's advisory council on trade and investment in Asia, says foreign governments and multinational companies cannot ignore China -- especially with the country's impending entry into the World Trade Organization.
"China is going to be the most important economic event maybe in world history, or at least in current history. So, if you don't have an engaged policy with China, you have a disaster," said Morgan.
However, at least one expert is concerned that the unfettered ramping up of chip plant construction in China may cause a glut in the worldwide semiconductor market. That's what happened in the 1980s when Japan sped up its chip production.
"China is aggressively building capacity and the assumption is that it would be for domestic electronics, but they're doing this even while their small manufacturers are already facing losses," said Usha C.V. Haley, an international business associate professor of University of Tennessee at Knoxville who has written four books on business in Asia.
"The assumption is that the Chinese chip market will grow 10 percent every year and swell to US$21 billion by 2005. ... But those assumptions are very, very questionable. The Chinese are feeling the export slump, the recession of the US. China has only 80 million middle-class people in Shanghai and Beijing," she said.
Also, potential chip consumption in China may be overstated because the vast majority of Chinese who live outside financial centers Beijing and Shanghai earn only US$270 a year, leaving cellular phones and computers well out of reach, she said.
Even so, many high-tech companies have taken important steps this month to stake their claims. Microsoft and Hewlett-Packard announced new Chinese facilities in the past two weeks.
In September, Intel, which opened its flash memory assembly and testing plant in Shanghai in 1998, announced plans to expand. It already has 1,200 employees there and plans to add 3,000 by 2004.
Earlier this month, leading chip foundry Taiwan Semiconductor sent one of its executives to look at office space in Shanghai, where the company plans to "begin establishing relationships that will allow us to investigate the feasibility of building manufacturing facilities in China," spokesman Chuck Byers said.
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