China Will Influence Half Of All Electronics Hardware Design Worldwide: Report

China’s renewed push to build a large semiconductor technology ecosystem, and cut its heavy dependence on imports of integrated circuits and other components, could have wide-ranging consequences for global semiconductor companies, according to a report from consulting firm McKinsey.

The effort could result in the country influencing as much as half of all electronics hardware design, Gordon Orr, director of McKinsey's Shanghai office, and Christopher Thomas, an associate principal at the firm's Beijing office, wrote this month in a report titled, ‘Semiconductors in China: Brave new world or same old story.’

Although China, which the report says is “by far the largest consumer of semiconductors” and accounts for about 45 percent of the worldwide demand for chips used both in China and for exports, more than 90 percent of its consumption relies on imported integrated circuits.

However, after previous attempts to alter this imbalance didn’t really take off, the Chinese government has changed its policy to try a market-driven plan to manufacture more semiconductor components locally, according to the report.

Now, the Chinese government has created a task force to oversee the development of the local semiconductor industry and has released a policy framework that plans to invest as much as 1 trillion renminbi ($170 billion) over the next five years to 10 years and grow the sector at a compounded annual rate of 20 percent between now and 2020, according to the report. And, the environment is also ripe for such a push, the McKinsey consultants suggest.

"Multinational corporations in every industry—from automotive to industrial controls to enterprise equipment—increasingly are establishing design centers on the mainland to be closer to customers and benefit from local Chinese talent."

More than 50 percent of PCs and between 30 percent and 40 percent of semiconductor chips found in applications including cars, industrial machines, consumer electronics and medical devices have content designed in China, either directly by mainland companies or labs of multinational companies based in China, the report says, citing McKinsey’s own research.

"As the migration of design continues, China could soon influence up to 50 percent of hardware designs globally (including phones, wireless devices, and other consumer electronics)," the report says.