Every once in a while, there will be "good news" about the localization of China's chip field. Recently, even "domestic" is no longer enough to express their "success", and new domestic terms such as "nationally produced", "purely domestically produced" and "100% domestically produced" have appeared. Although this industry requires low-key work, data speaks for itself, and customer certification, this does not hinder the continuous output of "good news". Moreover, "good news" has evolved from the exaggerated words that initially attracted attention to the general concept of domestic production and the vague definition of localization.

China's semiconductor localization process is destined to be an epic of twists and turns and forge ahead in the history of the industry. It is inappropriate to make frivolous and exaggerated propaganda on such a heavy topic. What is localization, how to define localization, and what kind of localization we need. This is an issue that cannot be avoided before talking about localization.

The definition of localization

I am very ignorant and I really don’t know the precise definition of chip localization. Since localization has become a hot word in the industry, should the definition of localization be clarified? Since there are too many variables in localization, we discuss it from different scenarios:

If the company is registered in China, can it be considered localized? According to the general concept, localized chips should be produced by Chinese companies or companies in China. However, judging from the simple sentiments of the public, chips produced in China by foreign companies such as Samsung and Hynix should not be considered localized (maybe I am being narrow-minded). On the other hand, there is a type of enterprise that, although it is a Chinese enterprise, the actual controller of the enterprise is a foreigner. Such enterprises may be more strict than foreign companies in enforcing foreign jurisdiction rules. Can we judge who is localized from the place of registration of the enterprise? If the shareholder is Chinese, can it be considered localization? Semiconductor is a special industry. Judging from the composition of shareholders, sometimes it is difficult for the company's major shareholders or even wholly-owned shareholders to control the company or management. On the surface, mainland capital is the major shareholder, but in fact the management is controlled by a non-mainland team, and their decisions are completely subordinate to the overseas parent company. Can this be considered localization? Another example is an overseas company acquired or invested by Chinese capital, but the management is basically held by local people and must abide by local management regulations. Is this considered localization? If it can solve the stuck neck problem, is it localization? Some Chinese companies cannot serve domestic sanctioned companies due to various reasons. However, some foreign companies can find ways to bypass the United States and produce in third places to circumvent U.S. supervision and serve domestic sanctioned companies. How is localization defined here? If we look at whether the industrial chain is within the country. Are those chips designed domestically and manufactured overseas (including packaging) considered domestically produced? If the design, manufacturing and packaging of a chip are all completed by a Chinese company, but the key links use foreign equipment, materials and software tools, is this considered localization? There are also some material companies that act as import agents while selling their own products. All products are packaged in China. What's more, in the same package, there are both own products and imported products imported by agents. Is this considered localization? There are also some chip design companies that work as import agents while designing their own products, but all their products have their own logos. Is this considered localization? 

If only the localization of the entire industry chain is localization, that is, Chinese design companies use domestic architecture, IP and EDA to design chips; Chinese manufacturing companies and packaging companies use domestic equipment and domestic materials to manufacture and package their own designed chips, then this level of domestic production will not be realized for a long time in the future. It can be seen that chip localization is difficult to accurately define. In the real world, you cannot find chips whose entire industrial chain and entire industry links are manufactured by a single country. The United States cannot do it, and it is equally difficult for China.

Some people take the opportunity to blur the meaning of localization, deliberately avoid the truth and make profits out of chaos. In particular, most of the so-called domestic chips in some non-professional media are superficially localized and cannot withstand the test of the industry. Our reality is so cruel. Shouting slogans and giving chicken blood may boost our morale. Strong science and technology is what the Chinese people generally hope for, and it is also what our professional institutions and industry people expect. Under the current high pressure from external forces, who doesn’t want their country to be strong and who doesn’t want their industry to be strong. However, realizing the localization of semiconductors is a highly professional industrial issue that must be done down-to-earth and conscientiously. At this stage, neither "blind advocacy" nor "destroying one's prestige" can solve the problem of localization of semiconductors. Until we actually conquer the problem, it’s best to talk less and do more. 

But judging from historical experience, when encountering difficulties or reaching a historical juncture, people do not solve the problem, but instead turn their attention to nothingness, such as seeking answers from identity. Especially with the proposition of localization, it is easier to fall into the trap of thinking that people who are not our own race will have different minds. 

The most important thing about a chip is not its domestic status. What is important is whether it can solve problems: first, can it serve our economy? At present, cars are short of cores and car companies have stopped production. No matter who supplies chips to car companies, whether it is domestically produced or imported, the production line can be turned around and a car supply market can be created. Consumers will not ask who supplies the chips. When workers at car companies receive wages, they will not ask whether the chips are domestically produced or imported. Secondly, can we develop our semiconductor industry? As long as our semiconductor supply chain can operate normally, our upstream and downstream companies will have orders to accept, our research and development will have funds available, and our technology and talents will improve, then our industry will definitely progress, our ability to resist blockades will definitely increase, and our localization will progress. 

At this time, how meaningful is it for us to dwell on domestic products but not domestic ones? Those who often talk about localization now may have ulterior motives. They are either talking to the government in the hope of receiving special treatment; or they are talking to capital in the hope of self-respect and increased valuation. On the contrary, the upstream and downstream enterprises in the industry do not care whether they are domestically produced or not. We must emphasize this extreme case again: some Chinese companies are strictly restricted and cannot serve sanctioned Chinese companies, but some foreign companies are able to bypass the blockade and meet our needs.

Internal motivation for localization

Although the definition of localization is difficult to clarify, and although there is no need to deliberately distinguish who is domestically produced, the development and growth of China's semiconductor industry is our constant dream. In recent years, the blockade in the United States has become increasingly tight, and we have been hit repeatedly. However, after several years of exploration and hard work, we have achieved surprising results under heavy pressure. We get an important revelation from this. As long as we solve practical problems in a down-to-earth manner and do not deliberately dwell on superficial problems, our industry will progress and our localization will grow. Because China's semiconductors have huge internal momentum and strong adaptability, just like when globalization was unimpeded before, China's semiconductors grew globally. Now that someone has blocked it, China's semiconductors will naturally grow in the direction of localization to meet domestic demand. For details, please see:

First, in recent years, large companies, platform companies, and leading companies such as SMIC and Huahong Grace have made great progress. Their revenue has repeatedly reached new highs and their production capacity has expanded year by year. Huahong Hongli has expanded its technology platform from 8-inch to 12-inch platform, and its advanced technology has extended from 28nm to 14nm. SMIC's 14nm has achieved mass production and is currently developing more advanced processes; the design company Zhanrui has developed a 5nm 5G chip and has already ventured into mass production; in terms of equipment, AMEC's ​​automatic etching has entered TSMC's 5nm production line; in terms of materials, domestic photoresist, large silicon wafers, etc. have been supplied in batches. These achievements prove that we can drive the development of the entire industry by making our "big, flat, dragon and manufacturing" enterprises bigger and stronger. Especially the equipment and materials that we have ignored before have entered a healthy development track after receiving the active attention of the aforementioned key enterprises. This also shows that as long as we have the correct industrial thinking and rely on the self-reliance of Chinese semiconductor companies, we can alleviate the overseas impact to a certain extent. Second, since the US imposed sanctions, our insistence on the global market and top-level opening strategy has been effective. In order to do business with Chinese companies, many international companies have made a lot of internal adjustments and taken some avoidance measures. They have found new ways to serve the Chinese market while complying with US controls. This is a very important part of China's semiconductor progress in recent years. Third, the government's supportive policies and the proper use of financial tools, whether tax support for the semiconductor industry, or financial tools such as large funds and the Science and Technology Innovation Board, will play a huge role in the development of the entire industry. The latest quarterly financial report data shows that the profitability of a large number of semiconductor companies has generally increased, and the entire industry has escaped from the most dangerous and difficult stage and is increasingly on the right track. This proves that the government's support for advanced technology can achieve both market and efficiency considerations. As a result, the Chinese government's support policies for advanced industries have gradually become a template for governments around the world to follow.

Next strategy

Localization is a long-term task, and there will definitely be various challenges in the future. What’s the next step? Xinmo Research believes that the key to chip localization is to adhere to the idea of ​​​​opening up to the outside world and being professional and pragmatic internally, and to focus on supporting "large, flat, dragon, and manufacturing" enterprises. Don’t be anxious, don’t act blindly, don’t be deliberate, start from the bottom, meet all market needs, complete the underlying chain step by step, trade time for space, and wait patiently for the day when things will come true. 

What needs to be emphasized is how to make good use of international resources. International resources are still our most important increase. Despite the current restrictions, direct cooperation with international companies is still possible. Let us review Marx's famous saying here, "As long as there is 10% profit, it will be used by people everywhere; 20%, it will become lively; 50%, it will lead to active risk-taking; 100%, it will make people ignore all laws; 300%, people will not be afraid of crime, even the danger of hanging." As long as the West is still capitalist, capitalist enterprises will have no absolute immunity in the face of China's huge market, and the rules of globalization will still play a limited role. Within the existing restrictions and rules, we can still draw on rich nutrition. We have no reason to rest on our laurels. We need to be open and cooperate. Correspondingly, when managing international cooperation, we need a quiet and rational domestic public opinion environment. Nowadays, everyone is concerned about semiconductors, and the media is naturally at the forefront. This is a good thing, but semiconductors are a highly professional industry after all, and it is easy to make mistakes in analyzing and interpreting them. Under normal circumstances, it is harmless. But now, some high-imitation industry analysis has accidentally become a pretext for opponents. Therefore, there is no need for semiconductors to be the protagonists of national talk shows. Our public opinion circles must cool down semiconductors, especially to avoid deliberate rumors by traffic catchers. 

At the same time, achieving a career is always about solving real problems, and arguing about domestically produced and non-domestic products is meaningless to the progress of our cause. The growth of China's semiconductor industry is achieved by solving real problems. A gentleman is dignified and self-reliant. Our semiconductor industry needs a solemn, prudent, and strong style. Only in this way can we win time, space and future for the localization of China's semiconductors.

Disclaimer: This article is reprinted from "China Economic Weekly". This article only represents the author's personal views and does not represent the views of Sacco Micro and the industry. It is only reprinted and shared to support the protection of intellectual property rights. Please indicate the original source and author for reprinting. If there is any infringement, please contact us to delete it.

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