In the 1980s, the U.S. was consumed with fear that Japan would become the outstanding power in manufacturing and technology. Those fears never came to pass. Today the same fears are pointed China. The Middle Kingdom begins to be an even more daunting foe, with its great amount of foreign reserves, fast-growing economy, oceans of scientists and engineers, and enormous subsidies to high-tech companies . How real is the China threat?
There is no doubt that China is making quick strides in both infrastructure and technology, but U.S. anxiety of being overtaken by China appears to be misplaced . It takes more than money and might to reach innovation. This is what I learned when researching the pompous values of engineering graduation rates in China and by analyzing its pharmaceutical industry. And this is one of the key findings in a new book titled Wafers and Change: How Crisis Reshapes the Semiconductor Industry (MIT Press). Written by Professors Clair Brown and Greg Linden of the University of California at Berkeley, the book provides a wealth of information about transistor development cycles as well as a fresh and informed look at some of China’s key technological capabilities in those realms.
A few years ago, China seemed to be on track to dominate the global semiconductor industry in the same method it currently dominates the electronics manufacturing sector. In 2004, China’s most advanced chip manufacturer, SMIC (SMI), went public on the Hong Kong and New York stock exchanges. The next year, two Chinese chip design companies , Actions (ACTS) and Vimicro (VIMC), had successful Nasdaq IPOs. Boosters of China’s chip industry said there were hundreds more transistor design firms waiting in the wings and many new Chinese chip manufacturers were also starting up.
Barriers to Advance
Five years later, most Chinese chip firms remain unprofitable. Why? A number of interlocking reasons that propose spins as to why training lots of engineers and spending money to subsidize firms and build conveniences is not enough to construct a successful industry.
Because of China’s poor face for defending intellectual ownership , multinationals have limited technology transfer to China. For example , chip giant Intel (INTC) is now building a plant in northeastern China but has long delayed locating its most cutting-edge fabrication facilities in China, even though this increases the price of logistics to supply China-based electronics plants , which are among the biggest consumers of Intel processors.
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