China’s 13th Five-Year Plan Steers Domestic Semiconductor Companies to Sectors That Will Form an Autonomous IC Industry Ecosystem, Says TrendForce

The Chinese government officially released the 13th Five-Year Plan this March. In this broad national economic roadmap, two initiatives – the upgrading of modern industries and the expansion of the country’s Internet economy – will have significant influence over the development of the Chinese fabless IC design industry. Ariel Chen, analyst for the global market research firm TrendForce, pointed out that the latest Five-Year Plan report reveals China’s ambition to set the rules of competition in the global semiconductor market in the era of the Internet of Things. “Specifically, the Chinese government wants to guide domestic IC design houses into focusing on areas that are listed as priorities in the Five-Year Plan,” said Chen. “Also, the state aims to help domestic IC design houses to catch up technologically with major international competitors.”

According to TrendForce, over 50% of all products that came out of the Chinese fabless IC design industry in 2015 were chips for consumer electronics/communication applications and analog chips. Furthermore, the domestic design houses have experienced increase of their annual revenues in recent years. Under the 13th Five-Year Plan, the efforts of Chinese IC design companies will be directed into the following application markets:

Markets for data security products that are independently developed rather than using technologies from foreign suppliers

Data security is a crucial issue affecting all Internet-related activities, and the Chinese government is increasingly concerned about the security certification of domestic IC products. An example of a certification standard that most international semiconductor companies adhere to is the Federal Information Processing Standards (FIPS). Chen thus expects Chinese IC companies to be more active in improving the security features of their products and designing chips specifically for the data security application (such as Secure Element). The localization of data security technologies would reduce the country’s reliance on foreign suppliers for this type of solutions.

Mobile application processor market that has seen advances due to collaborations with major manufacturers

The 13th Five-Year Plan explicitly states that information communication technology (ICT) is a major development focus. Currently, leading Chinese IC companies HiSilicon and Spreadtrum have made mobile application processors their main products. “Compared with foreign competitors, Chinese design houses have received a lot more resources from the state in terms of funding and time,” Chen noted. “However, they have to learn not to solely rely on the price advantage that comes with government subsidies.”

Chen also said the collaboration between the Chinese IC companies and major international semiconductor manufacturers will be a long-term trend. There are already many deals under which foreign semiconductor companies provided their Chinese partners vital technologies in exchange for access to the local market and distribution channels. Future deals between them may even involve mergers and acquisitions.

Automotive electronics market that is driven by rising demand for new energy vehicles 

The 13th Five-Year Plan has also called for concrete actions on the implementation of the new energy vehicle initiative that was formulated under an earlier policy framework known as “Made in China 2025.” Chen said that though the market for automotive electronics has high entry barriers, the vast size of the Chinese auto market offers ample opportunities for domestic IC design houses. Datang NXP Semiconductors, for instance, is a Chinese automotive electronics company that has become a major player in China’s new energy vehicle supply chain. As indicated by its name, the company is a joint venture of the Netherland’s NXP and Datang Telecom, a locally based telecom equipment provider.