The Made in China 2025 National Strategic Plan to develop the domestic semiconductor industry has triggered the establishment of tens of thousands of fabless chip designers in the People’s Republic of China in just a few years. But many of them seemed ill-equipped to weather the fierce competition between each other and global players, which is why around 10,000 such chip companies went bankrupt between 2021 and 2022. reported. Digi Times (opens in new tab).
Market observers are now wondering whether the massive shutdowns of Chinese IC design firms are the result of tightened US export controls imposed from 2020 to 2022, or the ongoing downturn in the global semiconductor industry. I’m wondering if it’s the result of Both factors contributed to the shutdown, but there are a number of China-specific issues that have forced about 10,000 domestic chip companies out of business.
The Made in China 2025 program has implemented several policies to reach its goals. These include tax cuts for tech companies, encouragement to buy foreign technology companies, support for R&D funding by large manufacturers, and direct R&D funding by the state. The results were impressive to say the least. The number of chip developers in China increased from 736 in 2015 to 1,780 in 2017, according to the company. China Renaissance Securities (opens in new tab)Since then, 70,000 chip companies have been registered between 2020 and 2021. Digi Times (opens in new tab).
The report acknowledges that the escalating US-China trade war in 2018 has further encouraged the Chinese government to fund tech companies, with subsidies from federal or local governments prompting many IC design firms to was established. In addition to subsidies, a surge in speculative capital prompted the creation of similar IC design firms developing general-purpose chips that were poised to collapse for multiple reasons.
The semiconductor industry is notoriously capital intensive, but the field relies heavily on talent, skillful management, and knowledge. Even if companies have sufficient resources, they still need to attract talent, invest in research and development, and secure sufficient capacity from foundries for sustainable long-term development. Without engineering talent and good management, your chances of success are slim. These days, China has a lot of engineers, but not enough managers to run these IC designers well.
Meanwhile, an investment bubble erupted. Ding Xing Quantum, a China-based private equity firm, has been investing in his IC designer in the country since 2017. The firm initially observed the value of such companies to be in his RMB 200-300 million ($28-43 million) range. But by 2019, valuations of startups in the sector had ballooned from his RMB 1 billion to his RMB 2 billion ($145 million to $190 million), a clear investment. It shows bubbles, and such bubbles tend to burst.
There was another factor in the lack of IC design firms in China. The downturn in China’s consumer market will shift to a structural imbalance in demand and supply from the third quarter of 2021, after which the global semiconductor industry will face destocking in his second half of 2022, with an economy of its own. plunged into retreat. As a result, demand for chips fell across the board, and China-based developers that produced commodity ICs went bankrupt because they couldn’t offer something special.
Sanctions on China’s semiconductor industry have clearly affected the development of this sector, as evidenced by the problems faced by companies such as Alibaba, Biren, HiSilicon and YMTC. Meanwhile, the global semiconductor downturn and the lack of competitiveness of many Chinese chip designers played a much bigger role in the dissolution of the People’s Republic of 10,000 semiconductor entities, concludes the DigiTimes article.
