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China’s Bid to Dominate the Chip Industry Is In Danger of Falling Short

The country is committing $100 billion to becoming a global chip leader, but that won’t be enough.
August 24, 2016

China’s current strategy for becoming the global leader in computer chip manufacturing is being called into question.

In 2014, the Chinese government announced that it would invest $100 billion to assert itself as the global leader in the development and production of computer chips. It’s already begun spending large amounts of that money on new fabrication plants, but a new analysis by the management consulting firm Bain & Company suggests that the country’s investment alone won’t be enough to secure dominance.

The state-owned chip maker XMC is hard at work building facilities that will manufacture NAND flash-memory and DRAM chips, the first of which is expected to be operational in 2017. And earlier this year the nation caught western chip makers by surprise, manufacturing the processors used in the world’s fastest supercomputer.

But there is a long way to go. Certainly, huge quantities of silicon-based devices look set to flow through China: Bain predicts that an impressive 55 percent of the world’s memory, logic, and analog chips will flow through the country by 2020. But China currently produces only 15 percent of those semiconductors, and it’s stated aim is to increase that figure to 70 percent by 2025.

That goal is, according to Bain, an “almost insurmountable challenge” through organic growth. Instead, the consultancy firm reckons that the only way China will be able to achieve its goal is through partnerships and takeover opportunities. That will help it to acquire technological understanding and talent, rather than building it from scratch.

Without that kind of outward looking approach, Bain predicts that China will fall well below its stated target. "Consumers and businesses around the world will continue to choose systems and devices based on quality, technology, value, and brand,” it explains. "To gain a material share in the global market, Chinese semiconductor manufacturers ... need to catch up with foreign players in terms of technology."

(Read more: Bain & Company, Bloomberg, Economist, “The New Fastest Supercomputer Is Chinese Through and Through”)

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