[Wei on the Economy] "Hard Technology" Semiconductor: Leading Hong Kong's Sustainable and Diversified Economic Development in the Future

At the beginning of this series of columns, the author mentioned that the semiconductor industry chain is one of the five major technology industries that Hong Kong should develop.

At present, the global economy is undergoing digital transformation, and production and life are undergoing ABCDR (that is, artificial intelligence (AI); blockchain (Blockchain); cloud computing (Cloud Computing); big data (Big Data) and robotics (Robotics). Revolution, all technologies have massively increased the demand for chips, making semiconductors a strategic asset.

In the past two years, under the haze of the epidemic, the global demand for computers, communication products, home appliances and automobiles has greatly increased. These products must use chips to function properly.

However, many leading chip manufacturers, such as TSMC and Samsung, have reached a bottleneck in production, resulting in severe shortages or price increases of products that rely on chips, hampering the operation of many important supply chains (including automobiles, computers, and home appliances).

Intel President Pat Gelsinger said the semiconductor industry was growing by about 5% a year before the pandemic hit, which has disrupted supply chains while demand for semiconductors increased by 20%.

A 2021 report by research firm IC Insights expects semiconductor foundry sales to grow at an average annual rate of 11.6% over the next five years and exceed $151.2 billion in 2025.

Self-sufficiency in the semiconductor industry is the key to developing national strength. In order to solve the problem of chip shortages and reduce dependence on foreign supply in the long run, governments around the world are planning to increase support for the chip industry.

For example, the South Korean government will invest 6.3 trillion won in three major industries such as semiconductors, future automobiles, and biological health this year, an increase of 43% from 2021, and increase the tax deduction rate, while supporting the localization of automotive semiconductor supply chains.

Japanese Prime Minister Fumio Kishida stated in the 2021 supplementary budget that the Japanese government will provide more than 1.4 trillion yen of investment in domestic chip production to support the development of domestic cutting-edge chip manufacturers.

The U.S. has a $52 billion bill to expand U.S. semiconductor manufacturing.

SMIC has established seven factories, and its stock price has soared after its listing on the mainland's science and technology innovation board, with its market value once exceeding 600 billion yuan.

(file picture)

China's semiconductor industry strategy

China's semiconductor market and industrial structure are out of balance between supply and demand. In 2021, Chinese manufacturers can only meet 6% of the domestic demand for semiconductors.

The "East and West" project further requires a large amount of semiconductor support.

In the face of the United States continuing to restrict the development of certain technological fields in China, the central government proposed a "dual cycle" strategy in the "14th Five-Year Plan" in 2021, in which the basic scientific research, design and production of semiconductors have become important components. and has strengthened policy and financial support for the entire chip supply chain to ensure the development of China's digital economy.

The central government also sees the industry prospects of the third-generation semiconductors and provides key support, and Liu He, Vice Premier of the State Council, personally presides over the development work.

The third-generation semiconductors are composed of silicon carbide (SiC) and gallium nitride (GaN), which are more efficient, low-energy, and high thermal conductivity than the first and second-generation semiconductors.

The central government has also increased the second-phase investment fund for the integrated circuit industry, with a total investment of over RMB 200 billion.

Among them, SMIC invested in a new factory in Shanghai last year to develop 14-nanometer wafers that are widely used in 5G, artificial intelligence, electric vehicles and the Internet of Things. It is expected to produce 35,000 wafers per month.

For SMIC, although 14-nanometer and 28-nanometer chip revenue only accounts for 9.2% of total foundry revenue, it is of great significance and a big step forward in promoting the country's ability to eventually manufacture cutting-edge chips.

The National Integrated Circuit Industry Investment Fund also focuses on investing in the integrated circuit chip manufacturing industry through the Science and Technology Innovation Board, such as SMIC, UNISOC, Silan Microelectronics and China Resources Microelectronics, etc., to promote the chip industry and the research and development of third-generation semiconductor materials and production.

Taking Silan Microelectronics as an example, as one of the largest integrated integrated circuit chip design and manufacturing (IDM) companies in China, the National Investment Fund became a shareholder of Silan Microelectronics holding more than 5% of the shares in July 2020, and the investment has so far Not only does it help its development, but its returns are more than doubled. The fund kills two birds with one stone.

The independence of semiconductors is not only used to help the upgrading of the technology industry, but also to prevent key technologies from being controlled by other countries.

Blacksmithing also needs to be hard on its own, and the domestic replacement of the internal circulation of the wafer is bound to be the general trend.

In the current digital transformation of the global economy, the demand for chips has surged, making semiconductors a strategic asset.

(Reuters)

How can the loss of the chip repeat the same mistakes

As the core hub of external circulation, Hong Kong has always had a good intellectual property protection system, which is an important key factor for high-tech semiconductor companies.

In the 1980s and 1990s, Hong Kong used to have many semiconductor companies, supporting the watch, computer and household appliance industries using integrated circuits locally and abroad, and won the credibility of the "Made in Hong Kong" brand.

In 1999, Xu Dalin, founder of the technology venture capital firm Handing Asia Pacific, proposed a "Silicon Harbor" plan to build six chip factories in Hong Kong, hoping to cooperate with Zhang Rujing, who was still in Taiwan at the time and later became the "Father of Chinese Semiconductors".

However, at that time, public opinion in Hong Kong questioned that the plan was to speculate on land, and the Hong Kong government did not allocate land in the end.

At the same time, Shanghai attracted the plan with almost free ground rent and five-year tax exemption, and established "SMIC".

At present, SMIC has established seven factories. After its listing on the China Science and Technology Innovation Board, its stock price has soared, and its market value once exceeded 600 billion yuan.

Looking back, it may have been a mistake for Hong Kong to miss SMIC.

This high-end manufacturing industry not only has high GDP output and low pollution, but also provides a large number of high-quality job opportunities for university students studying technology-related subjects in Hong Kong.

In the face of tensions in Sino-US relations, Hong Kong has the opportunity to face a certain degree of pressure from the United States, but the United States should have no intention of suppressing the development of semiconductors above 28 nanometers, because it is not important for the United States to maintain its leading position in the world.

In addition, semiconductors above 28 nanometers are very popular in the market, especially the electric vehicle industry, which is developing rapidly around the world.

As the automotive industry electrifies, the rigid demand for semiconductors will only increase.

Hong Kong can start with relatively low-tech 28nm semiconductors, and start with chips such as TVs, monitors and the Internet of Things for electric vehicles to develop emerging products.

These products do not require the use of advanced manufacturing processes, and then develop based on the market demand for third-generation semiconductors. In line with national policies, Hong Kong’s institutional advantages are used to attract semiconductor-related companies from all over the world to settle in Hong Kong and focus on innovation, design, small-scale Production and testing, integrating the semiconductor industry chain in the region.

The semiconductor industry usually offers relatively high salaries, so in addition to injecting new momentum into the industry, it can also provide promising career prospects for young people.

(Photo by Deng Qianying)

Enhancing the local reindustrialization talent pool

The outside world may worry about the lack of semiconductor experts and related talents in Hong Kong.

The author has interviewed semiconductor professionals who suggested that Hong Kong should recruit talents globally and conduct local training.

For entry-level talent, educational background is relatively unimportant.

Businesses should provide appropriate internships, mentorship programs, job rotation and on-the-job training for junior employees.

Take a leading semiconductor company in China as an example. The company uses 5% of its profits to train interns and trainees. It can also recruit and develop people who have a passion for the industry.

In addition, the company has also established cooperative relations with universities, and is committed to talent training. A large number of university graduates have interned in the company.

The government can also cooperate with the foundry industry to train high school graduates, through strengthening relevant education and nurturing technology-based talents.

The semiconductor industry usually offers relatively high salaries, so in addition to injecting new momentum into the industry, it can also provide these young people with promising career prospects, help narrow the income gap, and diversify the economic structure.

As a star industry, the semiconductor industry has both prospects and a general trend.

This industry will expand the local talent pool for re-industrialization, inject new impetus into Industry 4.0 and the business sector, and enhance Hong Kong's competitiveness.

Provide the younger generation with suitable job opportunities and knowledge of new technologies, enabling technology development and academic research collaborations.

The Hong Kong government can use the Loop to set up the world's leading third-generation semiconductor industrial park in Hong Kong.

(Photo by Liang Pengwei)

The semiconductor industry is the fulcrum of reindustrialization

To sum up, Hong Kong has clear incentives to develop the semiconductor industry.

Semiconductor is a capital-intensive and technology-intensive industry, and it is a high value-added industry, which is also in line with Hong Kong's transformation towards a high-value-added knowledge-based economy.

With the advantages of Hong Kong's "re-industrialization" and innovation activities, the potential development of the semiconductor industry will be conducive to economic growth.

Changes in the global geopolitical and economic landscape after the epidemic will continue to see a shortage of chips. Artificial intelligence, IoT and related products (such as electric vehicles, cloud computing, etc.) and 5G will only further increase the demand for semiconductors.

In addition, the national national policy is to develop technology independence, and it is not very difficult to develop the semiconductor industry. In the initial stage of investing more than HKD 10 billion in Hong Kong to establish a foundry, the potential profit rate can reach more than 20%.

However, because Hong Kong currently lacks relevant facilities, it needs to rely on domestic and foreign direct investment.

Hong Kong still has a long way to go in terms of capital investment and talent introduction. The government needs to provide enterprises with basic infrastructure, land and equipment (stable and reliable water and electricity facilities are extremely important for chip production). The Hong Kong government can use the LMC Loop to establish a global leader The third-generation semiconductor industrial park in Hong Kong and the establishment of an international semiconductor R&D center in the Hong Kong Science and Technology Park Microelectronics Center to develop and introduce technologies that have not yet entered the commercial stage.

At the policy level, it is recommended to set up a coordinating group of senior leaders.

In addition, various science and technology investment platforms in Hong Kong focus on investing in different innovative technology companies. The author believes that they will be interested in supporting the development of the semiconductor industry and promoting industry-university-research cooperation.

Twenty-three years ago, Hong Kong missed the opportunity to develop the semiconductor industry and is now far behind mainland China and the rest of the Tiger Four.

The Hong Kong government should actively take measures to establish R&D centers, design centers and foundry bases for the semiconductor industry, and cooperate with national policies to attract semiconductor-related manufacturing companies from all over the world to settle in Hong Kong.

Through the northern metropolitan area, the entire new-generation semiconductor industry chain will be brought together, and the re-industrialization of Hong Kong will be just around the corner.

Deng Xiwei

Professor of Economics, School of Economics and Management, The University of Hong Kong, Deputy Director of Asia Global Institute

For details, please read the 311th issue of "Hong Kong 01" Electronic Weekly (April 4, 2022) "