The founding 27 members of this alliance include Tsinghua Unigroup, Yangtze River Storage Technology, SMIC, Huawei, ZTE and China Academy of Telecommunication Research (a branch of the country’s Ministry of Industry and Information Technology, or MIIT).

“This alliance of government, academia and industry aims to create a complete ecosystem for domestic semiconductor manufacturers, said Jian-Hong Lin, research manager of TrendForce. “If successful, the alliance will create a chip industry chain starting from chip architecture to chip production, operation systems, devices, platforms and finally to the IT service market. In sum, this move is another indication of China’s ambition to transform itself from a major manufacturing country by export volume to a global manufacturing leader in terms of product quality.”

Lin added: “The mission of China’s high-end chip alliance is to develop highly localized and vertically integrated relationships among industry players. The ecosystem they built will be exclusively for domestic manufacturers and design houses. This approach differs from the development of Taiwan’s semiconductor sector, where participants are highly specialized in their own fields and actively seek partnerships on the global market. The Chinese expect their development strategy to be advantageous because there are currently few innovations in the chip industry in terms of product development. Under this situation, vertical integration within the national context drives the division of labor and technological progress. Moreover, vertical integration generates demand and expands the market and applications for semiconductor solutions.”

Lin also sees the formation of China’s high-end chip alliance as another warning to Taiwan’s semiconductor sector: “Taiwanese semiconductor companies cannot survive on just the demand from the domestic market and compatriot electronics brands. This is especially true for the local IC design houses. Their long-term growth will depend discovering new sources of demand and application needs in the international market. Still, China currently is the largest market and has the largest client base for Taiwanese IC design houses. Whether Taiwanese IC industry is allowed to form effective joint ventures or strategic partnerships with the Chinese counterpart is an issue that Taiwan’s government and technology enterprises need to address after the establishment of the high-end chip alliance in China.”

Furthermore, this Chinese industry alliance is not simply a team headed by the government to promote the purchase of domestically made semiconductor components.

“It will take time to understand the full implication of the cooperation between academia and industry,” said Lin. “The high-end chip alliance could become an important platform for application development. To reach that goal, however, requires the Chinese semiconductor sector to overcome several challenges.”

According to Lin, the high-end chip alliance will have to help remove several hurdles to speed up vertical integration and basic R&D.

Lin first pointed out that cooperation among Chinese semiconductor and technology companies is difficult to realize.

“For instance, Chinese chip makers Spreadtrum and RDA Microelectronics are still operating independently even though they have been acquired by Tsinghua Unigroup. Consolidating resources of two subsidiaries within a company is hard, but creating cross-industry alliances are even more challenging. Spreadtrum and Huawei’s IC subsidiary HiSilicon, for example, have developed chip products based on the 16nm process technology. Major Chinese chip manufacturer SMIC, on the other hand, produces on a less advanced process technology. Spreadtrum and HiSilicon therefore will not be able to pursue the most advanced technology when working with SMIC. Similarly, SMIC has to make adjustments to work with domestic equipment and material suppliers that have yet to catch up to its level of technological maturity. Hence, the high-end chip alliance needs to set goals and incentives for the various industry participants as to make concrete progress.”

Effective teamwork furthermore involves concrete, step-by-step plans. Once chip-related IPs have been developed, their introductions into different applications, such as PCs, smartphones and IoT devices, must be carefully selected and prioritized. To create significant benefits for the entire Chinese semiconductor sector, the high-end chip alliance needs to draw up a clear and comprehensive industry roadmap. Otherwise, its members will be without coordination and pursue their own agendas.

“IC companies compete on an international level, so China’s semiconductor sector needs international resources to accelerate its development. Recently, China has been active in seeking membership in international organizations related to semiconductor trades. For example, the position of chairman of the board of directors for Global Semiconductor Association (GSA) is currently held by Dr. Leo Li, Spreadtrum’s chairman and CEO. Also, C-Sky Microsystem and Huawei became board members of Embedded Microprocessor Benchmark Consortium (EEMBC) earlier this year. These events are all important milestones of progress for China’s semiconductor sector.” Lin said.