A Review of China’s Electronics, IT and Materials Industries Professor Y. C. Chan Director of EPA Centre, City University of Hong Kong Engineers in Society ( EE3014 ) Lecture Series

I. Electronics Industry China’s electronics industry Current status Future development Asian perspective Summary Engineers in Society Lecture Series

China’s Electronics Industry Now - Production of Electronic Equipments Rise by nearly $24 billion per year Impressive figures, but expansion of China’s production is cooling off Key issues: over-heated investment, increased operational costs, reduced corporate earnings Source: iSuppli Engineers in Society Lecture Series Production of Electronic Equipment in ChinaUS$ billion Year Production of Electronic Equipment in China Annual Growth Rate

China’s Electronics Industry Now - Imports and Exports of Electronic Products Import and export values of electronic products keep rising during In year 2007, ~30% of export growth rate, ~23% of import growth rate Main imports: IC (  0.18  m), component Main exports: notebook, handset, and LCD Source: EE times Engineers in Society Lecture Series US$ Billion Year

In the Nation’s 11th Five-Year Plan ( ) Achieve breakthroughs in R&D and production of ICs, software, key components, specialized electronic equipment and electronic materials Grasp key techniques and hold core patents and standards Meet demands on techniques and products for domestic application and form a relatively complete industry chain Questions: What is the current status? Any breakthroughs? How is the future? China’s Electronics Industry Engineers in Society Lecture Series

China’s R&D Expenditures GERD: Gross Expenditure in Research and Development GDP: Gross Domestic Product Engineers in Society Lecture Series China’s GERD has steadily grown both in absolute terms and as a percentage of the GDP By year 2010, the ratio of GERD to GDP will hit 2%

Share of Global R&D Source: Battelle Memorial Instituite and R&D Magazine Study Engineers in Society Lecture Series U.S. leads worldwide R&D efforts China is by far the primary choice for offshore R&D outsourcing Interest from the international R&D community: Chinese government incentives, infrastructure, academic relationships, and scientific capital investments Share of Global R&D Spending (%) U. S China (Mainland) Japan India Germany France UK World100 World (US $ billion)

China’s IC Development Steady growth of China's IC industry Annual growth rate exceeded 30% during Although slowdown, a steady growth of up 24.3% in 2007 Structure of China's IC industrial chain changes: rapid development of package and testing industry (26.4% of growth rate), and slow growth of IC design industry (21.2% of growth rate) Engineers in Society Lecture Series Major driving forces Product line construction gets new results, investment becomes the major impetus to drive industrial development. Enterprises' reorganization and reform make new progress, public listing becomes a trend.

China’s IC Development (Cont’d) Existing problems in IC industry Industrial development slows down, some key vendors' performances are unfavorable. Competition is heating up, IC design enterprises face challenges  price wars become the most important means. Engineers in Society Lecture Series Future The future of the global market is unclear China's demand continuously increases. Improvements in industrial policy and investment environments, talent training and introduction drive the steady development of China's IC industry. China's IC market will hit its peak in Then the development speed will have a slowdown in the near future. It is forecasted that China's IC industry will keep a growth rate of 16.3% from 2008 to Source: CCID Consulting

China Closing the Semiconductor Technology Gap Engineers in Society Lecture Series SIA Road Maps / US China Feature Size (microns/nm):

Japan Taiwan Korea Pearl River Delta Hong Kong Malaysia Singapore Changjiang River Delta Shanghai Engineers in Society Lecture Series Thailand

Other Major Asian Players JAPAN – critical component & materials MALAYSIA – EMS / OEM SINGAPORE – ODM, computer peripherals KOREA – LCD, IC, cell phone, camera modules TAIWAN – IC foundries, flex circuits THAILAND–component, IC, HDD, household equipment Engineers in Society Lecture Series

Summary - Electronics Industry China as major electronics manufacturing hub Steadily increased R&D expenditures IC industry has a steady growth in China, but the development will have a slowdown in the near future Synergy with other major Asian players in providing critical components / materials Environmental issues – RoHS, WEEE, REACH Engineers in Society Lecture Series

II. IT Industry IT industry in the world IT market in China IT industry in China Future development Summary Engineers in Society Lecture Series

Information Technology The technology required for information processing and communication In particular the use of electronic computers and digital communication technologies to convert, store, protect, process, transmit, and retrieve information from anywhere, anytime. What is IT? Engineers in Society Lecture Series

IT Market in China 1.One of the World’s fastest growing IT markets 2.Asia-Pacific region’s second-largest IT market after Japan; Market share expected to reach 34.6% in this region in World’s 2nd largest IT hardware producer 4.3rd largest electronic component and equipment producer 5.2nd largest PC market 6.Fastest growing telecom and services market 7.Largest number of wireless and wire line subscribers * Source: “Information Technology and E-commerce Opportunities in China”, U.S. DEPARTMENT OF COMMERCE Office of IT and E-commerce Engineers in Society Lecture Series

Source: Report on China’s IT Market Engineers in Society Lecture Series IT investment amounts to billion Yuan in 2005, and is expected to reach billion Yuan in 2007 Main business opportunities:  E-government  Telecom  Consumer IT products IT Market in China - Investment

IT Market in China - Investment Structure Mature IT market measurement : software + service ≥ 50% IT investment structure in China is undergoing a quick adjustment period China still lags behind the Asia-Pacific and world averages at the moment Analyst sees a critical turning point in 2008 Source: Analyst Predicts IT Sector to Mature by 2008 Report on China’s IT Market Engineers in Society Lecture Series

IT Industry in China - Telecom Slowdown in 2005 telecom IT market caused by management reshuffling within operators and the pending 3G issuance 2006 telecom IT market has recovered Overall telecom IT market expected to reach billion Yuan in 2010 (excluding 3G investments) Engineers in Society Lecture Series Highlights over the next 5 years: Business intelligence (BI) systems, network management systems, and value-added service (VAS) systems Source: IDC Report “China Telecommunications Industry Solutions ”

IT Industry in China - Hardware Hardware is still the main stronghold of China’s IT industry Hardware market has entered into a mature period Steady development of the technology Competition among manufacturers heats up Slow growth rate in sales Gradually declined rate of profit Engineers in Society Lecture Series unit: thousand Product CategorySales in 2004Sales in 2005Growth Rate Computer - desktop % Computer- laptop % Server % Display % Printer % Projector %

IT Industry in China - Software + Service Engineers in Society Lecture Series PHASE Mid-1990’s: cost of software and service totally included in hardware price End of 1990’s: service in the form of product maintenance  pay for service beyond warranty period Beginning of 21st century: consultation service to provide a total solution to improve the operational environment  pay more for software/service Currently: IT Outsourcing Service Customer set target  technical details  pay for services Not concerned

IT software/services market is a growth engine of the total IT market IT services market expected to reach US$ 11.6 billion in 2009, with a CAGR* of 21.6% Highlight in IT services market: IT Outsourcing Service Issues: regulations and laws, unified standards, construction of credibility system, acceptance of the new concept, human resource * CAGR: Compound annual growth rate Engineers in Society Lecture Series IT Industry in China - Software + Service

IT Industry in China - Internet Engineers in Society Lecture Series At a turning point now from provision of information and entertainment to development of utility functions Second largest country for Internet in the world; Expected to become the largest in 2007 Greatest potential in world’s internet markets; over 123 million Internet users and 788,000 websites in China by 2005 CN domain name registration attained 1,096,924 by Dec. 2005, which ranked first among all ccTLDs in Asia and sixth in the world. In the year 2005, Blogers and attached concept of Web2.0 promoted tremendous development of China's Internet. ccTLD: Country coded top level domains

Future Development Crucial points: Software and service Human resource Regulation Information Security E-Government E-Commerce Engineers in Society Lecture Series

Summary - IT Industry IT industry as a driving industry for the economical growth and social development China has one of the largest IT markets in the world Telecom IT is developing at a phenomenal rate; software and service IT is the fastest growing part in China’s IT industry China is experiencing an all-round change of IT investment structure towards a mature market Engineers in Society Lecture Series

III. Materials Industry Engineers in Society Lecture Series  Iron and steel  Non-ferrous metals  Electronic/information materials  Energy materials  Biomedical materials  Basic chemical materials

1. Iron and Steel - Production and consumption Million Tons Year In year 2007, the total production value was about RMB 2000 billions. Engineers in Society Lecture Series above 35% of global production

Iron and Steel - Challenges and opportunities Too many small scale factories Low production efficiency Small R&D investment Poor technology/equipment Large market Industry structure modification Increasing external investment Government support Engineers in Society Lecture Series

2. Non-ferrous metals - Production Al, Cu, Zn, Pb, Mg, Sn, Ni, Sb, Ti, Au, Ag, Cd, Be Engineers in Society Lecture Series Million Tons Year In year 2007, exceeded 20 million tons for the first time; Ranking the first in the world for the sixth consecutive year.

Non-ferrous metals - Challenges and opportunities Engineers in Society Lecture Series High cost and low price due to worldwide credit crisis Implement of China’s tight economic measures RMB appreciation Discovery of new places of resources Big internal market External investment and cooperation

3. Electronic/Information Materials - China Engineers in Society Lecture Series Si Belated 10 years, in year 2007, monocrystalline Si 3500 ton, ~35% of the global. SiGe/Si, GaAs, GaN, SiC, Silicon on insulator Poor in R&D and production Photoelectron/display LED (GaN, SiC): in year 2007, ~168 billion RMB, 15% of growth year on year; LCD: in year 2007, export ~50 billion RMB; Indium tin oxide: 6 million pieces/year, ranking first in the world; PDP (21’’, 42’’): highly supported by government.

Electronic/Information Materials - China (Cont’d) Fibers 33% of the global market, well developed technology and equipment; In year 2007, capability of 36 million Km, 37.6% of annual growth rate. Electronic ceramics Ceramic production 2100 tons; MLCC is 900 tons/year, market need is ~4000 tons; Poor in AlN ceramic production. Engineers in Society Lecture Series

Electronic/Information Materials - China (Cont’d) Magnetic materials In year 2007, NdFeB global production was 14.4 thousand tons, China produced 65%; AlNiCo global production was 7.8 thousand tons, China produced 38%. Electronic soldering Sn based solders for SMT: ~20 thousand tons per year; Flux: more than 2000 thousand tons per year. Engineers in Society Lecture Series

4. Energy materials - Overview Main traditional energy materials Coal: hundred million tons Base oil: 1.7 hundred million tons Natural gas: 350 hundred million m 3 Over exploitation, continuable development? Available exploitation/storage oil is 2.6 ton/person, natural gas 1074 m 3 /person, coal 90 ton/person, which are 11.1%, 4.3% and 55.4% of global average value, respectively. Engineers in Society Lecture Series

Energy materials - Water electricity and Nuclear energy Water electricity In year 2007, annual electricity generation 4332 hundred million KW.hour, need further development; By year 2020, expected electricity generation hundred million KW.hour. Nuclear energy In year 2007, nine nuclear power station, capability of 8.7 million KW, electricity generation 629 hundred million KW.hour. Percentage of nuclear electricity in total electricity FranceBelgiumSwedenJapanAmericaChinaAverage 77%58%44%34%20%3%15% Engineers in Society Lecture Series far less than the average

Energy materials - New energy materials Primary energy Solar energy, biology energy, nuclear energy, wind energy, geothermic energy, sea energy. Secondary battery (hydrogen energy) In year 2007, Ni-H cell: export 9.3 hundred million pieces; Li-ion cell: export 10.9 hundred million pieces, ranking the second in the world; Solar cell: global production 3436 MW, 35% of the global. Engineers in Society Lecture Series

5. Biomedical materials - Overview Bacterium, bacterin, toxin, serum, blood, immune agent, Global: ~1000 kinds in clinical application, medicine growth rate 10-15%, biomedicine growth rate 20-30%. Engineers in Society Lecture Series

Biomedical materials - China. Almost full copy, few R&D, no innovation, profitable? Serious competition, superfluous and repeated production, long term phase, high risk, governmental financial support. Key new materials: Biochip, Antibody/bacterin, Organ substituting materials, Blood purifying materials, Drug control and release materials/system. Engineers in Society Lecture Series

6. Basic chemical materials/products - Synthetic resins/plastics Five main resins Polythylene (PE), polypropylene (PP), polyvinylchloride (PVC), polystyrene (PS), acrylonitrile butadiene styrene (ABS), etc.; Plastics Polyamide, polycarbonate, polyoxymethylene, polythylene, terephthalate, etc. Engineers in Society Lecture Series

Basic chemical materials/products - Synthetic fibre production Terylene, nylon, acrylic fibres, etc. Engineers in Society Lecture Series Thousand Tons Year above 32% of global production

7. Others and new materials - new industry Building materials Rare element materials New chances? Nano materials Eco-materials (green/environmental) Superconductive materials Engineers in Society Lecture Series

Summary - Materials Industry China has tremendous resources, e.g. rare earth resource. China has an intensive market for materials industry. Low-end technologies and products are mature. BUT On the contrary, high-end technology developments have lagged behind advanced countries. Related research and development expenditure is relatively small. Engineers in Society Lecture Series