China's Electronics Industry: the Definitive Guide for Companies and Policy Makers with Interest in China

245 Pages·2006·1.647 MB·English

by  Michael Pecht

Foreword

China has come to enjoy a remarkable economic growth rate that has averaged nearly
10 percent per annum since the country began to pursue its open-door policy and
market-oriented reforms in 1978. As a result, China has transformed from a centrally
planned economy into a market economy and effectively strengthened its economic power
and raised its people’s standard of living.
No country in history has burst onto the world’s economic stage as dramatically as
China. With its accession to the World Trade Organization in 2001, China has not only
become the world’s third largest trading nation, following the United States and Japan, but
also the world’s top destination for foreign direct investment (FDI), and one of the world’s
major manufacturing bases.
With China’s rapid economic growth, electronics has now become one of the most
important industries in the nation. China has become the world’s largest maker of many
electronic appliances, such as color TVs, DVDs, and cell phones. China also now has a
leading-edge semiconductor industry. This is great for China, since the Asian-Pacific market
is projected to grow significantly over the next decade.
The future of China is bright. China’s preparation for the Beijing Olympics in 2008 and
World Expo in 2010, as well as her successful manned space mission, continues to spur her
economic growth and social development and enhance her overall national strength and
position in the world. China’s abundant well-trained technical labor, large market, and
growing economy provide the ideal conditions.
China’s Electronics Industry by Prof. Michael Pecht provides comprehensive
information on the latest development of China’s electronics industry and the factors that
contributed to its success. We hope that this book gives the readers an opportunity to learn
about China and her electronics industry.

Minister Counselor Jin Ju
Embassy of the People’s Republic of China
2300 Connecticut Avenue, NW
Washington, DC 20008
Preface

China made contributions to the world down through the ages, but for a
long time conditions have been at a standstill in China and development
has been slow. Now it is time for us to learn from the advanced countries.
China cannot develop by closing its door, sticking to the beaten track and
being self-complacent. You ask us whether it runs counter to our past
traditions to implement the policy of opening to the outside world. Our
approach is to define new policies according to new circumstances, while
retaining our best traditions.
- Deng Xiaoping, October 10, 1978

Since the open-door policy began in 1979, China has boasted one of the fastest growth
economies in the world. Electronics has been a Chinese pillar of success and is now the
largest industry in China with growth of nearly 20 percent annually, and there is no end in
sight. China is now the world’s number one producer of TVs, recorders, VCD players,
telephones, calculators, refrigerators, and air conditioners. China also has the number one
cellular phone market, is number one in IC consumption, has a leading-edge semiconductor
industry, and is the largest PC producer. Entry into the World Trade Organization is leading
to economic liberalization, simplification of the licensing and foreign investment policies,
and targeted government funding in electronics R&D.
The Chinese central government is encouraging foreign investment and providing
massive incentives in the so-called “pillar industries,” which include the electronics industry,
to serve as a multiplier for science, technology, and national economic development. As a
result, companies are rapidly transferring science and technology into China. For example,
Intel, which already operates three major electronic facilities in Shanghai, is further
expanding into Chengdu with two new plants and more than 2,000 employees. Intel is also
training engineers and has introduced new textbooks and added courses on semiconductor
physics and factory processes to the undergraduate curriculum of the local universities.
This book documents the technologies, manufacturing, capabilities, and infrastructure
that have made China a major player in the electronics industry. It covers semiconductors,
electronic packages, printed circuit boards, connectors and contacts, computer hardware and
software, telecommunications, and various electronic systems. Other topics include the role
of government, research organizations, educational institutions, science and technology
information networks, and major companies in establishing an infrastructure where the
electronics industry can flourish.
In its coverage of the important aspects of the Chinese electronics industry, this book:

• Demonstrates how various factors, such as political structures, government policy,
science and technology development, education, and labor force, have contributed to
the growth and performance of the industry;
• Reviews Chinese economy in the post-reform period, including general economic
xiv China’s Electronics Industry
status, specialized economic zones, monetary and fiscal policies, foreign direct
investment and trade, as well as Sino-U.S. economic relations;
• Presents the development of China’s electronics industry, foreign trade and
investment in the electronics industry, and national planning;
• Evaluates major segments of China’s electronics industry, such as semiconductors,
computer hardware and software, telecommunications, and electronics systems;
• Includes valuable site reports for key companies and other organizations;
• Provides statistical information and numerous tables and figures that illustrate the
text.

A brief description of the organization of the book and the topics in the chapters
follows.

General Information: Chapter 1 provides a brief overview of China’s geography,
population and major ethnic groups, language, religion, education system, and political
structure, and a brief overview of her modern history.

Economic Conditions and Policy: Chapter 2 overviews China’s economy in the
post-reform period, and the methods used to promote international trade and to encourage
foreign direct investment, especially in the electronics industry. Topics include the current
economic status, China’s foreign trade relations, and the development of special economic
zones. China’s monetary and banking systems, foreign exchange systems, and issues of
public finance, such as taxes and import tariffs, are then discussed. Trade issues between the
U.S. and China have also been discussed.

China’s Science and Technology: Chapter 3 outlines China’s science and technology
infrastructure, current status and goals of national science and technology policy, and the
national management of China’s electronics industry.

Development of China’s Electronics Industry: Chapter 4 presents China’s Five-Year
National Development Plans and the foreign trade and investment in the development of
China’s electronics industry. Major national electronics projects are then discussed.

Semiconductors: Chapter 5 discusses the status of technological development and
evaluates the future growth of the semiconductor industry in China. The chapter presents
the domestic industry as well as the cooperative relationships between the domestic
manufacturers and foreign multinationals in designing, manufacturing, and testing
semiconductor devices.

Electronic Manufacturing Service Industries: Chapter 6 provides a review of
semiconductor packaging, circuit board manufacture, circuit card assembly, and system
integration industries. It also briefly discusses the activities of foreign and domestic
packaging businesses in China.

Connectors, Cable Assemblies, and Backplanes: Chapter 7 provides a brief overview
of the interconnect industry in China. Data are presented on the leading market sectors,
shipments by interconnect category, local production compared to imports and exports,
leading interconnect manufacturers, leading contract manufacturers, and basic information
on capabilities and manufacturing of interconnects in China.

Computers: Chapter 8 presents China’s computer industry. Topics in this chapter
include technology developments in hardware, competition among major domestic
manufacturers and foreign competitors, government interaction and support, and China’s
supercomputers.
Preface xv
Telecommunications Industry: Chapter 9 discusses the development of China’s
communications industry based on three major industrial segments: telecommunications,
mobile communications, and data communications. Discussion topics include national
telecommunications development, the use of the Internet and the growing electronic
commerce in China, as well as the competition in technological network standards in
China’s mobile communications market. In addition, foreign joint ventures in China’s
communications market and the development goals for China’s communications industry
are also presented.

Other Electronics Industries: Chapter 10 overviews China’s consumer, automotive,
avionics, medical, military and space electronics industries. China's consumer electronics
industries include TV, DVD, and cellular phone. The chapter also examines government
policies related to this industry and discusses possibilities for future development, along
with the opportunities and challenges facing China.

Software: Chapter 11 presents China’s software industry and the Internet development.
The development of software industry depends on the number and quality of software
talents, research in software technology, domestic and foreign investment, and legal
protection. The Internet is a catalyst of developments. In this chapter, we review the
development and discuss the potentials of the software industry and the Internet in China.

Conducting Business in China: Chapter 12 discusses the question of why someone
would want to conduct electronics manufacturing in China. To answer this question, the
chapter examines the reasons for the strong growth in China’s electronics industry and also
identifies challenges.

This book is intended for corporate planners, business managers, policy managers,
technologists, and engineers. They will find it useful in assisting them to comprehend the
current status and future growth of China’s electronics industry; understand the cultural,
economic, and technological factors that drive and inhibit market access and success in
China; and make decisions on strategic issues such as market entry, establishing joint
ventures and strategic alliances with Chinese electronics companies in order to access the
world’s largest emerging market. Finally the book is intended to help companies formulate
strategy to cooperate and compete in the global electronics industry.

Michael Pecht
George Dieter Chair Professor
University of Maryland
College Park, MD 20742

June 21, 2006
Acknowledgments

We are indebted to the companies, universities, and the professional colleagues who
provided us with the time and support for writing this book. This book would not be what it
is today without their help. We are extremely grateful to the State Science and Technology
Commission of the People’s Republic of China, and the Chinese Embassy in Washington
D.C. for providing up-to-date information on Chinese economic growth, electronics
technology development, and industry strategy and structure. Special thanks go to Prof. Y.C.
Chan and the EPA Center for invaluable help in previous editions.
We extend our sincere appreciation to those who reviewed the draft of this book and
offered many suggestions for improvement. These people include: Honorable Yang Jeichi –
Ambassador of the People’s Republic of China to the United States, Honorable Xu Guanhua,
Minister - Ministry of Science and Technology - People’s Republic of China, Honorable Jin
Xiaoming, Minister Counselor - Science and Technology Office, Embassy of the People’s
Republic of China in the United States, Prof. Stephen Y. L. Cheung of City University of
Hong Kong, Mr. Daniel K. Lau of Ralong Business Technology Academy, Ms. Samia Islam
and Ms. Angie Wong of City University of Hong Kong, Mr. Charles F. Larson of Industrial
Research International and Prof. Robert Coogan from the University of Maryland. We also
thank Parva Fattahi and the student assistants at the University of Maryland: Reagan Colaco,
Nitya Chandrasekharan, Harshal Kuldivar, and Dhaval Mehta, for their help with formatting
the book.
All chapters in this book are the result of collaborative efforts made over many years.
Besides the editor, the following people helped on individual chapters.

• Chapter 1: Weifeng Liu, Hewlett-Packard Co.; Chee Cheung, Compass Technology
Co., Ltd.; James Gao, University of Maryland; and Xiaolu Hu, San Jose State
University
• Chapter 2: William Boulton, Auburn University’s College of Business; Charles
Lobo, Tata Consultancy Services; and Ken Davies, Organisation for Economic
Co-operation and Development
• Chapter 3: Greg Felker, Hong Kong University of Science and Technology;
Weifeng Liu, Hewlett-Packard Co.; Laurie Sullivan, Electronic Business News;
Jingsong Xie, Beijing University of Aeronautics and Astronautics; and William
Blanpied, George Mason University School of Law
• Chapter 4: Chung-Shing Lee, Pacific Lutheran University, School of Business;
Weifeng Liu, Hewlett-Packard Co.; and Steve Yang, Intel Corporation
• Chapter 5: Weifeng Liu, Hewlett-Packard Co.; Zhenya Huang, Motorola; and Bin
Zhu, University of Maryland
• Chapter 6: Ji Wu, CALCE, University of Maryland; Haiyu Qi, CALCE, University
of Maryland; Bin Zhu, University of Maryland; Daniel Donahoe, Exponent, Inc.; and
Ricky Lee, Hong Kong University of Science and Technology
• Chapter 7: Fleck Research, a Division of Global Connector Research Group, Inc.
• Chapter 8: Jingsong Xie, Beijing University of Aeronautics and Astronautics
• Chapter 9: Bin Zhu, University of Maryland; and Mustapha Ismail, American
University of Beirut
• Chapter 10: Martin Rosman, CALCE, University of Maryland; M. Lee, LG
xviii China’s Electronics Industry
Electronics; Ping Zhao, Medtronic; Frank Sun, Western Digital Corporation; Hui Xia,
Agilent Laboratories; Wei Li, Logitech, Inc.; Robin Li, National Semiconductor
Corporation; Irene Zou, Auburn University, College of Business; and Bin Zhu,
University of Maryland
• Chapter 11: Karl R. H. P. Leung, Hong Kong Institute of Vocational Education
• Chapter 12: Simon Wong, The Refined Industry Co., Ltd; Hamed El-Abd, WKK
Distribution Ltd, HK; Jingsong Xie, Beijing University of Aeronautics and
Astronautics; Tao Jin, University of Maryland; and Hong Ye, Beijing Polytechnic
University

Royalties generated from the sales of this book will be directed to support research at
the Center for Advanced Life Cycle Engineering (CALCE), University of Maryland,
College Park.
Chapter 1

General Information

The People’s Republic of China (hereafter referred to as “China”) is located in the
southeastern part of the Eurasian Continent and on the west coast of the Pacific Ocean,
bordering on the East China Sea, Korea Bay, Yellow Sea, and South China Sea. China is the
world’s most populous country and the fourth largest in land area. Most of China is located
in the temperate zone, with southerly parts in tropical and subtropical zones. Politically,
China is under the leadership of the Communist Party. This chapter provides general
information about China’s geography, population, ethnic groups, language, religion,
education system, and political structure, with a brief overview of its modern history.
1.1 Geography
China is centrally located in East Asia. It borders Afghanistan, Pakistan, India, Nepal,
and Bhutan to the west; Myanmar, Laos, and Vietnam to the south; across the seas to
Indonesia, Malaysia, Brunei, the Philippines, and Japan to the southeast; the Republic of
Korea on the east and Russia and Mongolia to the north; with Kazakhstan, Kyrgystan, and
Tadzhikistan to the northwest.
Historically, the high mountains and deserts of the west and northwest were almost
impassible, and seaborne traffic between China and other countries was difficult and
dangerous. This topography insulated China from other major civilizations until the advent
of modern communication and technology. China’s mountains, rivers, and other
geographical features have also divided the country into distinct north and south regions,
marked by differences in climate, agriculture, culinary traditions, dialects, politics, and
culture. However, China’s geographic isolation has been a unifying factor incorporating the
country into one state for millennia.
In area, China is 9.6 million km2, smaller than Russia and Canada and slightly smaller
than the United States. Overall, its terrain slopes from west to east, from the
6.44-kilometer-high mountains of Tibet, through high plateaus and desert, to hills and plains,
and finally the deltas of the east coast.
Over 40 percent of China is mountainous or hilly. Its largest mountain range is the
Qinling, extending east from the great Kunlun system of north Tibet. True plains are found
in north and northeast China, the Yangtze River system, and the Sichuan basin.
China’s coast on the east spans approximately 18,000 km. Most of the coastline is flat
and most docks and harbors are ice-free year round. Around 5,400 islands occupy China’s
territorial seas, including Hainan (34,000 km2) and many islands, islets, reefs, and shoals in
the South China Sea (the Dongsha, Xisha, Zhongsha, and Nansha island groups). Taiwan
Island to the east has a total area of 36,000 km2.
The Yangtze, at 6,300 km, is China’s longest river and third longest in the world,
behind the Nile in Africa and the Amazon in South America. It is navigable by large ships
2 China’s Electronics Industry
year-round for 1,500 km inland from its mouth in the East China Sea. The second longest
river in China is the Yellow River with a length of 5,464 km. The Yellow River flows from
the Tibetan Plateau and is unnavigable for most of its length. The longest man-made river in
the world is the Grand Canal, running 1,801 km from Beijing in the north to Hangzhou in
Zhejiang Province in the south. The canal, which links the Haihe, Yellow, Huaihe, Yangtze,
and Qiantang rivers, was first constructed in the 5th century B.C.
Only 13.3 percent of China’s land is arable, but cultivated crops cover 95 million
hectares (ha),1 mainly on the Northeast Plain (wheat, corn, sorghum, soybeans, flax, and
sugar beets), the North China Plain (wheat, corn, millet, and cotton), the Middle-Lower
Yangtze Plain (paddy rice and freshwater fish in the “land of fish and rice”), the Pearl River
Delta (paddy rice), and the Sichuan Basin (paddy rice, rapeseed, and sugarcane). Per capita
arable land is about 0.1 ha, only 47 percent of the world average. Grasslands cover an area
of 400 million ha, while forests cover only 159 million ha, mainly in the northeast mountain
ranges of the Greater Hinggan, Lesser Hinggan, and Changbai mountain ranges.
China’s mineral reserves, comprised of 156 different minerals, rank third in the world,
and include coal (1,003 billion tons, mostly in Northern China), iron (46 billion tons), salt
(402 billion tons), oil (427 fields), natural gas (125 fields), and nonferrous metals such as
tungsten, tin, antimony, zinc, molybdenum, lead, and mercury. China’s water resources are
vast, with over 1,500 rivers each draining over 1,000 km2. Inland water from rivers and
underground springs comprises 1.82 percent of China’s land surface and can provide 6.75
billion kWh of energy, of which 3.79 billion kWh has been developed. China’s hydropower
potential is the world’s largest.
1.2 Population and Ethnic Groups
China is the most populous country in the world. The Chinese government reported that
by July 2004 China’s population, excluding the Hong Kong and Macao Special
Administrative Regions and Taiwan, was 1.299 billion (21 percent of the total world
population), of which males accounted for 51.5 percent and females 48.5 percent.
The growth of China’s urban areas has accelerated dramatically since economic
reforms were instituted in the late 1970s. Prior to that time, urban migration was tightly
controlled to prevent runaway urban growth (over 80 percent of the population was rural).
Urban populations experienced strict rationing of foodstuffs. In the 1990s, high demand for
labor in urban areas provided ample job opportunities for residents, and the end of rationing
made life in the cities easier. China’s employment in 2003 is shown in Table 1.1 below.

Table 1.1: China’s Employment Structure, 20032

Agriculture 50%

Industry / Manufacturing 21%

Services 29%

Figure 1.1 shows the estimated age distribution of the population in 2004. Life
expectancy in China is similar to that in other developed nations – about 70.4 years for men
and 73.72 years for women. Another key finding was that the average family size fell from
roughly 4 persons to roughly 3.5.

1 Hectare – measure of area in the metric system, 10,000 sq meters
2 McKinsey Quarterly, 2004 – China Today,
http://www.mckinseyquarterly.com/category_archive.aspx?L2=21&L3=33, Accessed 3 March 2006
General Information 3
Age 65+,
7.60% Age 0-14,
21.40%
Age 15-64,
71%

Figure 1.1: Composition of Population3

The Chinese government regards the large size of the country’s population as a
multidimensional issue. The growth of the population may be the strongest evidence of the
success of the Communist regime in terms of the effectiveness of government measures to
feed the nation and provide people with basic health care. The sheer size of the population
has provided security to the nation, and has been a source of cheap labor and an immense
potential consumer market attracting domestic and multinational businesses. Nevertheless,
China has recognized the need to slow population growth due to inadequate per-capita
resources. The government has formulated and implemented a population policy to restrict
families to one child each, with flexible family planning policies for ethnic minorities
and rural areas. As a result, the population growth rate was reduced from 1.47 percent in
1980 to an estimated 0.57 percent in 2004. China expects to control its population to below
1.33 billion. Table 1.2 shows various population-related figures in comparison with those of
the United States.

Table 1.2: US-China Comparisons on Population-related Indexes (2004)4
China5 United States
Land Area (1,000 km2) 9,597 9,631
Population (million) 1,306 296
Life Expectancy at Birth (years) 72.27 77.71
Infant Mortality (per 1,000 live births) 24.18 6.5
Total Fertility Rate (children born/woman) 1.72 2.08
Adult Literacy (%) 90.9 97
Telephones-Mainlines (million – 2003) 263 268
Telephones-Mobile Cellular (million – 2004) 334.8 194.5
Gross Domestic Product (US$T–2005 estimate) 8.18 12.41
GNP (US$T- 2005) 1.53 11.35

3 CIA, The World Factbook,, 11 May 2004 Update
4 CIA, The World Factbook, 2005, http://www.cia.gov/cia/publications/factbook/
5 The following data do not include Hong Kong.
4 China’s Electronics Industry
Although China’s population control efforts appear successful, new problems have
arisen. First, the aging of the population has become a concern. Currently, it is estimated
that there are about 97 million people over age 65, accounting for 7.5 percent of the national
population, well over the internationally recognized proportion of 7 percent for an aging
society. This will create a heavy social security burden. Another problem is the growing
gender-ratio imbalance. The gender ratio is estimated at 112 boys to 100 girls.
Another challenge in China is that the richest 10 percent of Chinese control 45 percent
of the country’s wealth, according to Chinese Government figures, and the poorest 10
percent hold about 1 percent. About 250 million people in the country still earn less than
US$1 a day – the official definition of poverty n China – and 700 million live on less than
US$2 a day. Incomes among rural Chinese have actually declined in the last 4 years, the
World Bank reports. This rural 70 percent of China’s population has an average income of
just US$318 a year. If benefits such as superior schools and medical care are included in the
calculation, the average urban income is seven times greater than the average rural income,
the Chinese Academy of Social Sciences has calculated.
The majority of the Chinese population is of Han ethnicity, making up about 91.6
percent of the total. The rest of China consists of some 56 different nationally recognized
indigenous ethnic groups. The largest minority group is the Zhuang, comprising over
16 million, mostly in the Guangxi Zhuang Autonomous Region. There are 18 other
nationally recognized minorities with a population of over 1 million, including the Zhuang,
Manchu, Hui (Muslims), Miao, Uygur, Yi, Tujia, Mongolian, Tibetan, Bouyei, Dong, Yao,
Korean, Bai, Hani, Li, Kazak, and Dai.
1.3 Language
The Chinese language exemplifies both the diversity and the unity of Chinese culture.
On one hand, the standard written language can be understood by all educated Chinese. On
the other, the spoken language is fragmented into hundreds of mutually unintelligible
regional dialects and their local variants. There are 108 dialects in the province of Fujian
alone. Except for Mandarin, no other Chinese major dialect is spoken by more than about
8.5 percent of the population, and most by less than 5 percent. Although all Chinese dialects
are tonal, the number and inflection of tones differ markedly between the various dialects,
along with significant differences in pronunciation. Consequently, a standard pronunciation
is learned by most Chinese speakers throughout the world, often in addition to at least one
other dialect. The standard pronunciation of Chinese is referred to as Mandarin in the West;
Putonghua, or common spoken word, in China; and Guoyu, or national language, in Taiwan.
Putonghua is based on the language spoken in northern China and has been China’s official
language for centuries. Putonghua is spoken by at least 71.5 percent of China’s population.6
Of the foreign languages spoken in China, Russian replaced English in the 1950s and
was taught in most middle schools and institutions of higher education. However, with
economic reform and opening to the outside world, English has resumed great popularity,
particularly in the major cities. Japanese may be the second most popular foreign language.
Other languages, such as French, Spanish, and German, are taught mainly at the university
level. Various training programs and workshops have mushroomed throughout the country,
making foreign language study the most successful educational and commercial program.
With the surge in foreign imports and international exposure, a flood of foreign words has
penetrated the Chinese language, imitating the original sounds but often carrying a hint of
Chinese meaning.
China’s language modernization efforts include a fairly successful attempt to simplify
the pictographic characters of the written language to make learning easier and increase

6 The percentage of the population speaking a dialect is estimated based upon a total of Han Chinese population of
950 million.