The beginning of China’s semiconductor industry

In 1987, two very different dreams were born in Asia. In Taiwan, Morris Chang set his sights on building a company called TSMC that would manufacture the world’s best chips. At the same time, in Shenzhen, China, Ren Zhengfei founded Huawei—a small business that purchased cheap telecom equipment from Hong Kong and sold it in the Chinese market.

Though small in size, Taiwan was far ahead in technology. It had deep ties with Silicon Valley. Many engineers returned home from Stanford and Berkeley carrying big dreams. From the beginning, Morris Chang looked outward to international markets, adopting strategies to attract American clients and to build expertise in chip manufacturing.

China’s situation, however, was completely different. Despite its huge population, it lagged far behind in technology. Its best chips were comparable to Intel’s early designs from the 1970s—more than a decade behind global standards.

There had once been potential in China. During the 1950s and 1960s, the country trained scientists, produced transistor radios, and even built its first integrated circuit in 1965—just five years after America. But Mao Zedong’s Cultural Revolution destroyed all progress. Schools and universities were shut down, scientists were sent to the countryside, and foreign technology was banned.

Meanwhile, U.S. companies like Fairchild and Texas Instruments set up factories in Hong Kong, Taiwan, South Korea, and Singapore. Workers there learned skills and became highly capable, while China steadily fell behind. By 1975, Chinese officials admitted, “Only one out of every 1,000 semiconductors we produce is up to standard.” That same year, Nobel Prize–winning physicist John Bardeen visited Beijing and observed that while there was talent, the society remained too conservative. In 1979, the whole of China had only about 1,500 computers.

After Mao’s death in 1976, Deng Xiaoping came to power. He launched the “Four Modernizations” program, with science and technology at its core. At a science conference in 1978, semiconductor production was declared a priority. In the 1980s, the government slogan became—“First import, then produce domestically, finally export.” Yet poor skills and bureaucratic inefficiency meant little real progress. China’s electronics industry remained fully dependent on foreign chips.

It was at this point that Richard Chang entered the stage. Born in Nanjing in 1948, this Christian entrepreneur grew up in Taiwan and studied in Texas. He dreamed of building a modern chip industry in China. While working at Texas Instruments, he even collaborated with Jack Kilby, the co-inventor of the integrated circuit.

In 2000, Chang persuaded Beijing to support the construction of a modern chip factory. He established SMIC (Semiconductor Manufacturing International Corporation) in Shanghai. He raised $1.5 billion in capital, half of which came from American investors such as Goldman Sachs and Motorola. By 2001, SMIC had over 1,000 engineers, a third of them foreign. The company’s guiding principle was—“One experienced worker trains two new ones”—which allowed skills to spread quickly.

Although SMIC received tax breaks and subsidies from the government, it did not rely on political connections. Instead, it focused on advanced technology. By the late 2000s, the company was only about two years behind the global leaders. It won orders from Texas Instruments and, in 2004, was listed on the New York Stock Exchange.

Meanwhile, the global semiconductor landscape was shifting. In 1990, American factories produced 37% of the world’s chips; by 2000, that number had fallen to 19%, and by 2010, to just 13%. Japan too was in decline. New leadership in the industry emerged in South Korea, Taiwan, and Singapore. In 1992, Samsung overtook Japan to become the world’s leading memory chipmaker. By never halting investment, Samsung managed to maintain its dominance.

China, meanwhile, became the global hub of electronics assembly. Hundreds of millions of devices were produced there, all requiring chips. Through SMIC, China finally gained the capacity to manufacture its own semiconductors. Subsidized chip fabs across East Asia lowered production costs, which benefited U.S. fabless companies. These companies would later drive the smartphone revolution.

Globalization produced exactly what was expected—lower manufacturing costs, fierce market competition, and ultimately, cheaper devices in the hands of consumers. For Richard Chang, however, this carried a deeper meaning. His faith-driven dream had, at least in part, planted the seeds of a world-class semiconductor industry in China.

[Adapted and condensed from Chapters 30 and 31 of Chris Miller’s acclaimed book Chip War]

Author: Mahmud Hossain, a graduate of BUET, has led Bangladesh’s telecom and ICT sector for more than three decades. He played a vital role during the introduction of mobile technology in the country. Currently, he serves as a Commissioner at BTRC, having previously held senior positions in several leading local and international organizations.