Over the last 18 months, a series of grand-sounding announcements have been made regarding the establishment of high-tech manufacturing plants in Nanjing, collectively worth almost US$36 billion. As of now, the proposals are beginning to look more and more like a big white elephant.
To the casual observer, the numbers are sufficient to think that, once again, China can take on the world and win. Yet, the bigger picture is more blurry.
The aforementioned proclamations came from two giants in the high-tech world; the Tsinghua Unigroup and Foxconn (Hon Hai Precision Industry), with the former promising cutting-edge semiconductor factories and the latter R&D, logistics and the production of Liquid Crystal Displays.
This month, Foxconn turned 30 in mainland China, having established its first factory in Longhua Town, Shenzhen, in 1988. Yet, its birthday party in Nanjing amounted to hardly enough to pay for 30 candles.
In September of last year, Foxconn said, “it will invest ¥37.5 billion (US$5.74 billion) to expand its facilities in Nanjing city”, as The Nanjinger then reported.
Yet, last month, the first tranche of that investment was announced, amounting to little more than 10 percent of that initially promised, some ¥4.58 billion, for a R&D centre that focuses on the development of smart wearable products and intelligent terminal devices, writes China Daily.
Foxconn’s net foreign exchange reserves in mainland China, accumulated over its 30 years, amount to a tad less of Nanjing’s entire GDP for 2017, or almost ¥1 trillion.
Surely we deserve one or two bigger presents, perhaps with a little wrapping paper too.
The bigger of the two investments, from the Tsinghua Unigroup, that, perhaps tellingly, does not possess an English-language website, promises a US$30 billion investment into Nanjing to set up a microchip plant that can help China fulfil its own need for those vital components for devices such as smartphones.
According to memory, semiconductor and electronics new site Simmtester, in a report dated 12 April, 2017, the Tsinghua Unigroup “recently” broke ground on the Nanjing plant. Semiconductor Engineering goes on to say, “there has been little activity since then”.
A Chinese language media report, by Snow Media, dated 6 May, 2018, is slim on news regarding the Tsinghua investment, preferring to steer the focus to TSMC (Taiwan Semiconductor Manufacturing Company) and its factory for 16 nanometre chips that began shipping last month in the Jiangbei New Area of Nanjing. That there was nothing new as regards Tsinghua is an ominous sign.
Interestingly, the Tsinghua Unigroup and Foxconn share a 1988 birthday.
That big picture is China remains heavily reliant on foreign producers for high-end chips. The Tsinghua Unigroup, for example, traditionally made microchips for devices such as FM radios and televisions, the requirements for which coming nowhere near what is necessary for today’s smartphones.
Speed is, after all, the name of the game. For many years, China’s semiconductor fabrication plants (fab), also known as foundries, were prevented from buying foreign technology for the production of microchips, as a result of strict export control regulations for China, laid down by the USA and other nations.
China’s smartphone manufacturers had therefore had no choice but to buy foreign, when looking to satisfy the associated, insatiable demand at home, and did so from the likes of Intel or Toshiba.
The issue of whether China can catch up has both its supporters and detractors. Solid-state storage drives and smartphones use NAND flash memory, but shifting production to its successor, 3D NAND, is the tricky part that represents a very steep learning curve. Even the multinationals were immensely challenged by 3D NAND, as the technology requires many new and difficult steps previously unattempted in the fab.
The other potential headache for such a potential big investment in high-tech is a growing realisation in the industry that there are fewer high-volume market opportunities. “System vendors such as Apple and Samsung have begun building their own chips for mobile phones, and Google, Facebook, Amazon and Microsoft have begun designing their own chips for the cloud. The net effect is there are fewer high-volume markets available to recoup development costs for anyone else”, reported Semiconductor Engineering.
With these two quandaries, perhaps it is little surprise that progress on the two high-tech projects in Nanjing, especially that of the Tsinghua Unigroup, has all but stalled.
The very expensive question remains; is there any point in spending all this money if China is still going to end up lagging behind the world, or only able to sell its shiny new microchips domestically? No one wants to go down in history for making a financial mistake that leaves a bill on the table the size of that for Britain leaving the EU.
At this point, this is an answer to a question that Nanjing very much needs.
