The Consulate General of Switzerland in Shanghai - Commercial Section
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ISSUE N° 3 January, 2001

Who Wins In The Chip War : Shanghai Or Beijing

Integrated Circuit (IC) is known as the food for information industry and the drive for upgrading traditional industries. In some developed countries, 65% of their GDP growth can be attributed to the IC. Such a figure may explain why there is a heated competition between Beijing and Shanghai for being the national micro-electronics base, or to be accurate, being the China IC Centre.

Project 909 was launched by the former Ministry of Electronics and the Shanghai Municipality in 1997, with Huahong Group founded first and then a joint venture with NEC formed. "909"stands for the key project in the Ninth Five Planning during the 1990s. Before China could only produce the chip with 6 inch in diameter and 0.6m in wire width. The Huahong NEC Company makes IC of 8inch 0.35m.

But this is not the end, since so far the output of China's IC can only supply 20% of the increasing demand, particularly the high-level. Even it is estimated that the demand for IC will grow from last year's 20 billion pieces to 33.5 billion pieces by the year 2003. Just in the last two months of 2000, another two large chip plants: Grace Semiconductor Manufacturing Corp. and Semiconductor Manufacturing International Corp., laid down the groundstone at the Pudong Zhangjiang Hi-tech Park in Shanghai. This zone is a special zone that the city envisions as its ground-zero for becoming one of the world's major "information ports." With investment of over USD1 billion each, both of the wholly foreign-owned projects were directly approved by the central government. In fact, both have Taiwan fingerprints, although the investments come from Cayman Islands. When SMIC's full plans is realized years from now, it would build itself into China's largest producer of cutting-edge integrated circuits to supply the computer and communications industries.

While Shanghai is forging the Pudong Micro-electronics Base, Beijing is unwilling to lag behind. Shortly in mid December of 2000, two chip projects were signed. They are Beijing Xunchuang IC Co.,Ltd. and Beijing Huaxia Semiconductor Co., Ltd.. Some inside news say that Hongkong Asia Pacific Science Development Co., one of the investors of the Beijing Xunchuang IC Co., Ltd., originally chose to locate the plant in Shanghai, which has a comprehensive industrial basis, sound business environment and financial service. But the attraction offered by Beijing pulled them to the north. Beijing government not only promised reduction in land rent, but also 1%-1.5% discount in the loan interest.

Merely a couple of days later, on December 20th, 2000, at the mean time of the official opening of the Shanghai Pudong Micro-electronics Base, Pudong government declared the newest measures to further encourage the development of software and IC industries. The policy confirms that certified IC and software enterprises can enjoy both the preferential policies stipulated by the country and the Shanghai government, and supportive policy on hi-tech industry as well as the latest policy itself. The policy grants support to IC and software enterprises in various aspects like financing, taxation, import & export, land use, human resource, reward system and intellectual property rights. What is most interestingly noticed is that during the Tenth Five Period (2001-2005), Pudong government in hand with Shanghai municipal government will also grant 1% discount interest for the IC production line established in Pudong and ranked as the key project by the Shanghai government.

If one looks at the objectives set by the two cities, one will find them surprisingly the same. Shanghai government strives to attract investment of 7 USD 10 billion in its IC industry, introduce 10 wafer plants and over 100 enterprises in the field of designing, manufacturing, sealing and testing to Pudong within 5 years. On the other side, with the above-mentioned two projects of USD 1.5 billion, Beijing also announces the start-up of its North Micro-electronics Base. And it claims to invest USD 20 billion in 20 IC production lines within 10 years.

Who will win this war? Some people say that Beijing is already a bit ahead of Shanghai, since its computer output leads first in the country. Taking way the word "National" from the name of the Pudong Microelectronics Base, officials from Shanghai are keeping a low profile about the competition. But the silent attitude never means any give-up. The city is still quietly but firmly working in accordance with the blueprint of informationization. In fact, either from the view of industrial basis and infrastructure facilities, or in terms of soft environment e.g. service and market, Shanghai has more edge over Beijing. The special character of Shanghai determines its special role. As the chief consultant from a German business consulting company comments, "Even Beijing may have its Silicon Valley, Shanghai is the large-scale testing ground for the ideas it produces. Shanghai, rather than any other city, will determine whether the cyber-life will be the future in China."

Comparative Table Of Chip Projects in Shanghai And Beijing

Project  Investment  Investor  Construction
Start Date
Huahong NEC US$1.2 billion Sino-Japanese JV 07.97 64M SDRAM, logic circuit, designing, R&D, manufacturing & Sale
Grace Semiconductor Manufacturing Corp. US$1.63 billion WFO , Grace emiconductor Manf. Company
(a Taiwanese investment in Cayman Islands)
11.00 IC designing, R&D, chip, testing & packaging
Semiconductor Manufacturing International Corp. US$1.46 billion WFO, SMIC Corp. (a Taiwanese investment in Cayman Islands) 12.00 8 inch, 0.25m IC


Project  Investment  Investor  Construction
Start Date
Beijing Xunchuang IC Co., Ltd. US$ 200 million JV
- Beijing Electronics Co., Ltd.
- Cayman Xingda Investment Holding Co.
- Hongkong Asia Pacific Science Development Co.
12.00 6inch, 0.35m-0,8m
Beijing Huaxia Semiconductor Co., Ltd. US$ 1.35 billion JV,-Capital Steel Group 12.00 2 production lines: 8 inch IC


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