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China Seeks Rapid Progress In Electronics And Photonics

In the first of a series of articles on the emerging compound semiconductor industry in the world's most populous country, Sally Croft takes a look at the prevailing business climate in China.
China today is increasingly determined to compete in the global technology market. Government targets for chip production alone are already set as 20 billion chips by 2005 and 50 billion chips by 2010. Large as these numbers are, they are expected to satisfy only around 30% of the domestic market and 2% of the international market in 2005, with the corresponding figures for 2010 being 50% and 5%.

However, unlike in the silicon industry, where both the Chinese government and commercial companies now seem to have accepted that the country s main role will lie in low-cost manufacturing, there is a strong determination that China will play a leading role in compound semiconductor research, development and production. As the information superhighway rolls out across this vast country, many of the traditional government-run research centers or their offspring are being positioned in a more commercial environment, and doors are opening for collaboration with foreign companies.

"We re currently seeing tremendous amounts of money going into the electronics and photonics industries, through government funding, direct inward investment, joint ventures and also domestic private venture capital," said Gary Ditmer, Asia and Japan business manager of Oxford Instruments Plasma Technology (see box). "Our business has doubled in each of the last three years, and China is now our largest single-country customer in the Asia-Pacific region."Government programsResearch funding in China comes largely from government ministries. However, there is now growing investment from companies active in the marketplace, as well as other venture funding as companies decide to diversify.

The Ministry of Education funds the universities, and the Chinese Academy of Sciences (CAS) runs, for example, the Institute of Semiconductors, the Institute of Electronics and the Institute of Physics. Other funding sources include the Ministry of Information Industry (formerly the Ministry of Posts and Telecommunications) which has large institutes in Beijing and Wuhan, the Department of Commerce, and the Military Equipment Department.

Targeted government research programs are launched periodically and recent examples include:
• 863 program - a high-tech R&D program running from 1986 to 2010 with a broad remit including development in optoelectronics; some RMB 3.5 billion ($420 million) is allocated for 2001-2005.

• 973 program - a key basic research plan allocating RMB 2.5 billion for 2001-2005, with the main beneficiaries being CAS, Tsinghua University and Beijing University.

• 985 program - an information technology and nanotechnology initiative for 2001-2005, primarily directed into the universities.

Over the last decade, however, there has been distinct encouragement for research establishments to move more clearly into the commercial arena and to generate spin-off companies. An early, and very successful, example is Wuhan Telecom Devices Inc (WTD), established in 1980 as a joint venture between the Wuhan Research Institute of Posts and Telecommunications (WRI) - which had its origins in the national telephone company - and Corning Lasertron. New young companies such as Accelink Technologies, founded in January 2001 and located adjacent to WRI, and Wuhan Huagong Genuine Optics benefit from this clustering of skilled people and technology. China is now investing heavily in "Silicon Valley" style research clusters, such as the Optics Valley of China (OVC) in Wuhan.Research clustersWuhan, the capital of Hubei province, is the largest city in central China and has a population of around 7 million. It has evolved into a major science and technology center, and today hosts 35 universities, 726 scientific R&D institutes and more than 30,000 industrial companies largely focused on high-tech and industrial sectors. Both WRI and a national optoelectronics technology center are located in the city.

The OVC initiative is intended to optimize the development of a firm base for the optoelectronics and information industries in Wuhan. Objectives set out in the State 10th five-year plan include establishing a dedicated 50 km2 industrial zone; attracting relevant companies and promoting collaboration and/or mergers with Chinese or foreign optoelectronics companies or consortia; promoting quality products; and establishing first-class R&D and training facilities. Promoting fast technology transfer from academia to industry is also on the agenda.

OVC at Wuhan is focused primarily on optical communication and optoelectronics, with fiber-optic and compound semiconductor device manufacturing identified as key goals. At Changchun, located in the far north-east of China, an additional "Optical Valley" is being created, centered on compound semiconductor materials and devices, consumer optoelectronics, and monitor and display devices. In the region around Guangzhou and Shenzen, near Hong Kong, the Guangdong Photon Valley is becoming home to companies engaged in areas like high-volume LED manufacturing and device packaging. Established local companies like Shenzhen Photon Technology, a fiber-optic components manufacturer, are already in place alongside significant inward investment from companies such as Philips and JDS Uniphase.Promoting growthThese sponsored industrial initiatives encourage international investment through tax incentives and a readily available infrastructure. Their success demonstrates the attractiveness of China today as a manufacturing hub. A decade ago, Western companies setting up R&D operations in China were to a large extent going out on a limb - investing resources as "a gift to the government", as one leading player has described it. Equipment suppliers like Oxford Instruments Plasma Technology also found themselves advising on the necessary supporting infrastructures like cleanroom facilities and health and safety procedures, as well as helping researchers keep up to date with technical developments.

While some of these difficulties remain, the picture is changing rapidly. China today has a large number of highly skilled high-tech graduates and, while leaving for work or further studies in the US or elsewhere still exercises a strong pull for many, a significant proportion of those who do leave return to China a few years later. This growing pool of highly trained but relatively inexpensive employees (thanks to low local living costs), government tax incentives for foreign companies and a huge potential market means that the compound semiconductor industry is soaring.

"China is investing massively in compound semiconductors and the internal market is both large and highly competitive," said Ditmer. "I think it will be a few years before the country is a strong player in the global marketplace, but it s becoming increasingly clear that in technology terms, China is catching up fast and is probably now just a couple of years behind the West."Sally Croft is a freelance writer based in the UK.

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