Everything Is Connected: China's Political, Economic and Industrial Policies and the Development Of China's High Tech Industries 中国的电子工业 China’s Electronics Industry Technology and Business Insider (TBI) is a provider of intelligence about emerging technologies, companies and business sectors

China By the Numbers China Economic Review 2009  5 m students graduated from universities in 2007 Opportunity  Every year since 2002, 30% of China’s university graduates have not found employment! Challenge  Note: Consensus is that China needs to maintain a GDP growth rate of >8% annually to maintain sufficient employment and avoid civil strife. Challenge 中国的电子工业 China’s Electronics Industry © TBI 2010

China By the Numbers China Economic Review 2009  High Tech Industrial Base  In 2007 China’s High Tech industrial sector accounted for 7.8 of GDP  In 2006 China had 1.4 m people specifically engaged in scientific R&D, second only to the USA  At the end of 2006 China had 150,000 registered firms involved in science. 中国的电子工业 China’s Electronics Industry © TBI 2010

China is Unique  Progress is extremely rapid  China has not singled out a particular industry in which to excel. It is going for the complete supply chain in high tech industries, especially electronics  China has potential for incredible sustainment: (large population of workers, large market) 中国的电子工业 China’s Electronics Industry © TBI 2010

中国的电子工业 China’s Electronics Industry Source: WSJ, 11/16/2010

R&D Spending 中国的电子工业 China’s Electronics Industry © TBI 2010

 China is now at an inflection point more so than the West and how they deal with it is immensely important to all of us.  China is adept at technology transfer in all of its forms both legitimate and illegitimate and the momentum is such that any shortages in experience and intellectual capital are rapidly being overcome.  In the long run this will lead to significant increases in innovative capacity, the lack of which today is the most common, and only, comfort zone we have when viewing China as both a hard power and soft power competitor 中国的电子工业 China’s Electronics Industry © TBI 2010

 China recognizes the pivotal role of the microelectronics industry to its overall economic development, and its economic contribution to what the government refers to as a well-off society.  China is on track to achieve its “innovation-oriented” society goal by  In high-end electronics markets China is just beginning to seriously participate as a supplier as well as a buyer. © TBI 2010 中国的电子工业 China’s Electronics Industry

 China’s participation in high-end electronics markets will grow fast and feature high mix and low volume production, covering surveillance, medical electronics, automotive electronics, industry automation, military electronics, aviation and space electronics. China Outlook Newsletter December 2008 中国的电子工业 China’s Electronics Industry © TBI 2010

China’ Electronics Industry  China produces 35 percent of the global electronics market’s revenues of US $ 2 trillion.  It is important to analyze China’s electronics industrial base in terms of its connectivity to multinational and foreign-owned companies and global markets  It is just as important to understand what is happening China’s domestically owned industry and market demand. 中国的电子工业 China’s Electronics Industry © TBI 2010

中国的电子工业 China’s Electronics Industry 1990s 1980s 2000s The last phase of Globalizing Chinese Companies © TBI 2010

Common “Success” Story Transition from low cost (e.g. product assembly and manufacture) to value-added components, materials and equipment. Consumer goods Circuit card assembly Circuit card fab ICs 中国的电子工业 China’s Electronics Industry © TBI 2010 And it is integrated circuit electronics that has given us the PGMS and NCW that the Chinese have been studying since GWI

中国的电子工 业 China’s Electronic s Industry © TBI 2010 Comparative Growths In the Value Of High End Electronics Production: Source: OECD Information Technology Outlook Percent Per Annum Growth ChinaUSA Control and Instrumentation Radio and Radar Electronic Data Processing Telecommunication Medical and Industrial Components

Semiconductors and Microelectronics  The single most important technology sector for China’s economic development and high- tech industrial base is its semiconductor and microelectronics design and fabrication capability.  The key to China’s ability to design, develop, and produce high-reliability complex electronics components and systems is a rapidly growing microelectronics industry. 中国的电子工业 China’s Electronics Industry © TBI 2010

Industrial Policies National Guidelines for Medium- and Long-term Plan for Science and Technology Development ( )  Electronics, information theory and processing (electromagnetic fields, nano- electronics, bioinformatics, adaptive signal processing)  Computer science (system architectures, software engineering, natural language processing, virtual reality, embedded systems)  Network and information security 中国的电子工业 China’s Electronics Industry © TBI 2010

Industrial Policies National Guidelines ( )  Automation science (control theory, pattern recognition, artificial intelligence, robotics, environmentally sustainable industrial production processes)  Semiconductors, photonics (nanotechnology, high-speed optical networks, quantum optics, photonics in health and medical research)  Interdisciplinary research between information and mathematics (theoretical studies on number representation, software engineering) 中国的电子工业 China’s Electronics Industry © TBI 2010

Industrial Policies Electronics Information Industries Stimulus Plan of 2009  Ten objectives of announced the plan included the following objectives:  increasing fiscal investments  improving the investment environment  accelerating the promulgation and enforcement of finance and taxation support  enhancing support to export-oriented enterprises  supporting the application of information technology in traditional industries  encouraging enterprises independent innovation and creation  expanding the financing system  supporting mergers and reshuffling superior enterprises  expanding domestic demand  building industrial security and injury alert mechanisms. 中国的电子工业 China’s Electronics Industry © TBI 2010

Industrial Policies Developing a true dual-use industrial base  China is seeking to inject some of the private sector enterprise that increasingly drives its exports into a fresh sector : defense.  In a move to break down barriers to private involvement in arms production, Beijing approved recently the creation of a national fund to help finance private contractors – which often struggle to raise capital – while also investing in turning state defence suppliers into shareholding companies.  Officials believe that tapping private sources of funds will raise the hope of more efficient allocation of capital within the defence sector. “The development history of western defence industries makes clear that the capital markets have been fertile soil for their fast development,” state media recently quoted Xu Haipeng, head of the Defence Science and Technology Enterprise Management Association, as saying. Source: Financial Times (London) 05 Jan 09. 中国的电子工业 China’s Electronics Industry © TBI 2010

Everything Is Connected: How China is Taking Advantage of the Global Consumer Electronics Market Decline 中国的电子工 业 China’s Electronics Industry © TBI 2010

Globalization With Chinese Characteristics  China’s global reach, intellectual capital and industrial capacity will soon be sufficient to achieve its political objectives through soft power -- without firing a shot  The pressure to maintain internal order ensures that the CCP will continue to develop policies in support of the growth of its middle classes through high tech value chain escalation and the globalization of China’s companies.  Remember this from an earlier “this decade will now see the push of Chinese companies and brands in to foreign markets” 中国的电子工 业 China’s Electronics Industry © TBI 2010

Globalizing Chinese Companies  What’s holding China back?  “Maybe the more convenient way [to globalize Chinese companies] is through a kind of merge and acquisition and really buy the foreign company and fully use the foreign talent to manage the company.”  The McKinsey Quarterly, Video, China’s former chief trade negotiator, Long Yongtu November 2008 中国的电子工 业 China’s Electronics Industry © TBI 2010

Globalizing Chinese Companies  Chinese Companies Go Abroad  “…many Chinese companies plan to take advantage of the global downturn to make greater inroads into the West.  over half of smaller industry leaders interviewed have already begun moving overseas, or plan to begin within the next five years. Shaun Rein is the Founder and Managing Director of the China Market Research Group Jan 5, 09China Market Research Group 中国的电子工 业 China’s Electronics Industry © TBI 2010

Globalizing Chinese Companies  100% of large industry leaders interviewed have already started moving abroad, as have 80% of smaller leading companies.  80% of large industry leaders interviewed consider building their brand image from domestic Chinese to global name brand their primary goal in expanding abroad.  All respondent companies will establish more R&D centers abroad to better utilize the talent and technology advantages there  Chinese Companies Go Abroad (Part 2: The Consumer Electronics Sector) January 06, 2009 中国的电子工 业 China’s Electronics Industry © TBI 2010

Emerging Electronics Capabilities And Markets Avionics Automotive Renewable Energy Medical Defense 中国的电子工 业 China’s Electronic s Industry © TBI 2010

Aerospace Electronics Supply Chain Printed Wiring Board Assembly: 0-1 year development time; 3-30 years of required use Service Provider (Airlines): years of required use Paying Customers Subsystem (Electronic Module): 1-5 years development time; 3-30 years of required use System (Flight Control): 2-5 years development time; 5-30 years of required use System Platform Provider (Airplane) 3-10 years development time; 5-30 years of required use Regulatory Agency (FAA, EPA, UL) Multilayer Printed Wiring Board 3-6 mo. development time; 2-30 years of required use Resin Pre-preg and Core Woven Fabric Glass-Fiber Bundles Component 0-6 mo. development time; 2-30 years of required use Die Encapsulant Leadframe Accelerator Flame Retardants Release Agent Filler Resin ~ ~ Copper Foil 中国的电子工业 China’s Electronics Industry © TBI 2010

C919: China’s Domestic Large Jet Program 电子工业 China’s Electronics Industry China’s latest large aircraft development program is the C919 and is aimed squarely a gaining a share of the global long haul air transport market. © TBI 2010

ARJ21: Advanced Regional Jet for the 21st Century 中国的电子工业 China’s Electronics Industry © TBI 2010 Another advanced aviation development case with Brazil’s assistance this time.

Xi’an Aircraft: Xinzhou 600 Aircraft 中国的电子工业 China’s Electronics Industry Xi’an Aircraft is another result of the industry’s restructuring, with each company taking aim at challenging western manufacturers in specific market segments. © TBI 2010

China’s L-15 Falcon  The Hongdu Aviation Industry Company has just completed an early version of its L-15 Falcon jet  The jet’s turbojet engines produce 4,200 kg of thrust and speeds up to M1.6  This is one first step for China to close capability gaps in gas turbine engine development  The company also plans to open a chain of R&D and manufacturing centers in order to “strengthen international cooperation” and facilitate technology exchange 中国的电子工业 China’s Electronics Industry © TBI 2010

Everything Is Connected: Electronics required for jet engine controls  The L-15 is ideally suited to challenge US, British an French markets in the developing world.  As for gas turbine engines, research I worked on in 2003 concluded “not for at least another generation”. We were wrong!  The Aviation Industry Corporation of China (AVIC) commenced construction on 9 November 2010 of China's largest military jet engine development center as part of increasing efforts to close what is deemed as a gap in the country's industrial capabilities.  The engine development centre will focus on military as well as commercial systems and the facility will meet the future development needs of air power, particularly the development of large aircraft. It... will eventually form China's largest aero engine base. 中国的电子工业 China’s Electronics Industry

中国的电子工 业 China’s Electronics Industry © TBI 2010 China’s Auto Industry In 2009, China passed the US to become the largest auto market in the world. As of 2009 there were 52 foreign and domestic car makers operating in China, compared to 15 in the United States. In an effort to make the Chinese automobile industry more competitive internationally, the Chinese government has encouraged car companies to consolidate and reduce dependence on government subsidies and joint ventures with foreign companies. The golden period of China's auto industry will likely last 20 more years The yearly demand for passenger vehicles will reach over 35.2 million units in 2030 Source: Report-State Council, the Society of Automotive Engineers and Volkswagen China on July 5, 2010

中国的电子工 业 China’s Electronics Industry © TBI 2010 Chinese Automobile Production

中国的电子工 业 China’s Electronics Industry © TBI 2010 Standard Automotive Electronics Anti-lock braking system (ABS): MCU, direction sensor, speed sensors Tire pressure measurement system (TPMS): MCU, pressure sensor, probes Backward radar detector: MCU, infrared transceiver, alarms Power window: motor, power components and circuit protection Power steering: motor, power components and circuit protection Power lock: motor, encoder/decoder Automatic transmission: motor and circuit protection.

中国的电子工 业 China’s Electronics Industry © TBI 2010 Hybrid And Plug-In Electric Vehicles Electronics Hybrid and electric vehicles add complexity to vehicle electronics architecture and design. –The power train requires additional components such as battery and motor controllers. –Functions such as regenerative breaking must be integrated into current vehicle safety systems. –Extra consideration must be given to the effects of electronic noise and interference on the control system. –EV/HEV further complicates integration especially as power train control is essentially a drive-by-wire system critical to the safety of the operation of the vehicle. –Electronic microcontrollers are essential to vehicular power train applications and subject to increasingly stringent environmental and government regulations and design improvements

中国的电子工 业 China’s Electronics Industry © TBI 2010 HEV/EV Automotive Electronics Demand “Thanks to the mature hybrid power technology, China will likely produce 100,000 hybrid vehicles, 30,000 pure electric vehicles, and 10,000 fuel cell- powered vehicles in 2010” “Automotive electronics is an industrial discipline and China should attach much importance to automotive electronics research and development so as to speed up its transition from a major manufacturing country of entry-level vehicles to a high-end vehicle manufacturing country.” Production volumes projected to be, and 1 million HEVs, 300,000 all electric and 20,000fuel cell vehicles by Source: State Council, the Society of Automotive Engineers and Volkswagen China Jointly Authored Report July 5, 2010

中国的电子工 业 China’s Electronics Industry © TBI 2010 Renewable Energy  Sept 2010: China overtook the United States top spot in Ernst & Young’s quarterly renewable energy country attractiveness ranking China as the most attractive market - of 27 countries monitored since 2003-for investment in wind and solar projects  “Strong government resolve together with good infrastructure and a robust market has aided China in its drive to become a global leader in the renewable energy sector.”  Determinants: access to capital, access to the power grid, availability of land, planning barriers, and regulations

中国的电子工 业 China’s Electronics Industry © TBI 2010 Wind Energy In 2004 there were six wind turbine makers in 2004 in China. In 2009 there were more than 70. China is the third largest wind power market in the world. Sinovel Wind Group Co, which has the largest share in the domestic wind power equipment market, is now building a national offshore wind power technology and equipment research and development (R&D) center, which was approved by the National Energy Administration in January, Vestas, the world’s largest maker of wind turbines opened a $50M R&D center in Beijing on Oct 12,2010 to cover high voltage engineering, aerodynamics, materials and software development Source: China Daily 02/22/2010

中国的电子工 业 China’s Electronics Industry © TBI 2010 Main Components Of A Wind Turbine System Wind Power Rotor Gearbox (optional) Power Conversion and Control Power Transmission Generator Power Converter (optional) Power Transformer Power Conversion & Power Transmission Power Conversion & Control Mechanical Power Electrical Power Supply Grid

中国的电子工 业 China’s Electronics Industry Wind Energy © TBI 2010

中国的电子工 业 China’s Electronics Industry © TBI 2010 World’s Largest Solar-Powered Building in Dezhou, Shandong Province Photovoltaics

中国的电子工业 China’s Electronics Industry © TBI 2010 A wayside pavilion made of solar panels in Shanghai.

中国的电子工 业 China’s Electronics Industry © TBI 2010 Source: European Photovoltaic Industry Association 2010 China appears as a new player in 2009 with about 160 MW installed. For the Policy-Driven scenario, the annual market is expected to reach 30 GW by 2014.

中国的电子工 业 China’s Electronics Industry © TBI 2010 Source: China’s Electronics Industry 2009 Global PV Production in 2007 and Future Planned Production Capacity Increases

China’s Medical Electronics Industry  Many clinical medical devices are microprocessor-based electromechanical instruments that use a common set of building blocks:  power control and temperature management;  a user interface that includes a keypad,  LCD monitor and audio control; flash or EEPROM for data logging  device interfaces for connections to other machines. 中国的电子工 业 China’s Electronics Industry © TBI 2010

中国的电子工 业 China’s Electronics Industry © TBI 2010 China’s Medical Electronics Industry  In March 2009 China’s Ministry of Science and Technology announced that it will set up an independent national innovation industry base for medical devices in Chongqing.  Forecast at $45.6 bn in 2010, 41% growth over 2009  Forecast at $12.1 bn by 2014  More than 200 foreign owned and and transnational corporations companies, about 70 percent of China’s high-end medical apparatus and instruments producer base, dominate the industry.  Government investment in hospital reforms expected to stimulate 20% annual growth.

中国的电子工 业 China’s Electronics Industry © TBI 2010 Source:iSuppli 2010 China’s Medical Electronics Industry: Growth Rates

中国的电子工 业 China’s Electronics Industry © TBI 2010 China’s Defense Priorities Force Modernization –Precision Guided Munitions –Unmanned systems –Space –Producing 4th Generation Fighters –Expanding amphibious capabilities –Carrier and Blue Water Navy –Submarine force transformation –C4ISR Power Projection Naval Deployments Advanced Base Agreements

中国的电子工 业 China’s Electronic s Industry © TBI 2010 The C4ISR Challenge – its all electronics and software

中国的电子工 业 China’s Electronics Industry © TBI 2010 China's Defense Expenditures Source: The Military Balance, International Institute for Strategic Studies $US bn Per Capita % GDP Total Personnel (mn)

China's defense spending is by no means transparent !  China's officially published 2010 defense budget totaled about $77.9 billion  Chinese defense spending has increased by an average of 12.9% annually since 1989 when Beijing launched an ambitious army modernization program, and this was only the second year over that period in which annual growth was less than 10%. 中国的电子工 业 China’s Electronics Industry

中国的电子工 业 China’s Electronics Industry © TBI 2010 Source: The Military Balance, International Institute for Strategic Studies Arms Transfers 2001 & 2008 To ChinaFrom China Value % of Global Trade Value% of Global Trade 20011, , , % Change 59%127%

中国的电子工业 China’s Electronics Industry © TBI 2010 China’s Arms Sales Arms sales to enhance foreign relationships and generate revenue to support domestic defense industry. Source: Military And Security Developments Involving the People’s of China 2010:A report To Congress

中国的电子工 业 China’s Electronic s Industry © TBI 2010 Comparative Growths In the Value Of High End Electronics Production: Source: OECD Information Technology Outlook Percent Per Annum Growth ChinaUSA Control and Instrumentation Radio and Radar Electronic Data Processing Telecommunication Medical and Industrial Components

中国的电子工 业 China’s Electronic s Industry © TBI 2010 What about U.S. ? COTS = Commercial Commercial = China China = Control Control = Cost Increasing Control = Increasing Cost C4I Supply chain vulnerability for the most critical components of the American war fighting strategy and tactics!

中国的电子工 业 China’s Electronics Industry © TBI 2010 JSF Program Pedigree of COTS Processors Survey of ASIC/FPGA use on JSF Results: 73 ASIC/FPGA types across 12 subsystems FPGA ASIC FPGA Manufacture Asia Europe Asia Europe USA JSF FPGA & ASIC Usage ASIC Manufacture Unknown

中国的电子工 业 China’s Electronics Industry © TBI 2010 Everything IS Connected China’s Electronics Industrial Base & Policies Western Tech transfer and its contribution to China’s economic and military development Off shoring of production from West to East

中国的电子工 业 China’s Electronics Industry © TBI 2010 Given China’s freedom to make long range strategic global business moves it’s impact on the global competitive environment and employment base the high-technology industries cannot be discounted. Every business must fully understand the implications of the new China. Those implications are constantly changing - as China itself changes so does the rest of the world changes hence the need to constantly monitor developments in China. Everything is Connected

中国的电子工 业 China’s Electronics Industry © TBI 2010 Remember If you are involved in anything that implies risk to resources of any kind, you absolutely must stay on top of developments on a daily basis to understand the mosaic as it evolves. The pace of change in the modern world is too fast and too broad to take the chance of missing what your competitor - nation, institution, producer, etc.- also has access to. Take your eyes off the ether and you’ll miss critical intelligence that will eventually be your undoing