China Learning the IP Ropes

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

Travelling the Silicon Road
BEIJING — In some respects the Chinese semiconductor industry is like a young child, one that needs to learn the rules to live by in the world.

In other words, it needs to study hard and get good grades in school, and learn how to play well with the other kids, i.e., it needs to develop its own IP and learn how to protect that IP while respecting others. And it is looking to the rest of the world to help teach it.

That’s the analogy that Xu Xiao Tian uses to describe the chip industry here in this sprawling country. Xu is the secretary general of the China Semiconductor Industry Association; he sat down with Electronic News to discuss the current state of the semiconductor industry, namely China’s.

One of the common threads in conversations with Chinese officials here in Beijing right now is that of intellectual property, or IP, and Xu is no different. They realize that even with all the growth and investment in the chip industry here, China is still a very small part of a large global pie.

China’s semiconductor industry as a whole raked in $7 billion in revenues in 2004; by comparison, China’s foundry neighbor, Taiwan Semiconductor Manufacturing Co., saw sales of nearly $7.7 billion last year. United States-based Intel Corp., the world’s largest in terms of sales, saw revenue of more than $30.9 billion. Meanwhile, China’s largest chipmaker, Semiconductor Manufacturing International Corp. (SMIC), had revenues just shy of $1 billion.

Taking the Next Step

And yet, China realizes that information technology is a key to its growth, and if its chip industry — and ultimately China itself — is going to be successful in the long run, this means developing its own domestic IP.

Xu characterized China’s chip industry at this moment as entering its next stage of evolution. It has attracted some $15 billion in foreign investment; it has built fabs and factories, and has plans for more in the near future. SMIC has had a 300mm fab producing 20,000 wafers per month for a year now.

“Now, we need to manage that capital,” Xu said of all the private and foreign investment that has taken place. “We need to focus on developing our own IP.” He observed that developing the chip industry is not like developing a railway system; it’s not just a matter of building it. Without unique intellectual property, the domestic Chinese semiconductor industry will eventually founder, he said.

And while foreign investment is all well and good, and cooperation with companies and governments outside of China is necessary – and the Chinese want that help, Xu says – the profits from joint ventures largely go elsewhere, outside of China.

But there is a problem with IP in China, Xu acknowledges. “Actually, it’s a new concept in China,” he said.

Of the 1 million or so patents filed every year around the globe, about 2 percent are registered in China, Xu noted. And of those registered in China, 80 percent are contributed by foreign joint-venture partners. He returned to the analogy of Chinese industry as a youth that needs education.

“IP is a new concept,” Xu said. “We understand that if you write a novel, that is yours; that it is intellectual property, but in technology, it is a new idea for us.”

And before you write a novel, you have to learn to write sentences, he noted. “China wants help and guidance,” Xu said. “We want to make it clear to the world we are a student. The world should serve as our teacher.”

But China isn’t just waiting around to be taught. The CSIA has set up an IP promotion committee, tasked with educating the chip industry here on IP: what is it and how to manage it, and the importance of respecting the IP of foreign companies.

Xu himself, in fact, has authored a book, “The Frequently Asked Questions of IP in the IC Industry.” Designed to help domestic Chinese companies learn the ins and outs of IP, he said that foreign companies have requested that the book be translated into English, so that they can better understand the perspective of the Chinese companies with whom they do business.

Electronic News Travels to ChinaFurthermore, China as a whole also needs to develop its own public IP platform in the semiconductor industry, in part to teach domestic companies how to manage IP, Xu suggested. China also needs to learn to conduct IP transactions in a transparent environment, letting it be managed by third-party institutions. And companies should be punished for appropriating the IP of others, he added.

Ultimately, if Chinese companies can learn to respect IP while developing their own, they will earn the trust of foreign companies, which will then be more willing to share their intellectual property – an important step for the Chinese chip industry, Xu said.

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