Show me the Money! Er … Shanghai

Travelling the Silicon RoadSHANGHAI — I begin to see why semiconductor executives get in a tizzy whenever they talk about Shanghai.

From the moment you take the gleaming, brand new maglev train — reportedly the world’s fastest commuter train, topping out at 430kph — into the city from Shanghai-Pudong airport, to the impromptu tour of the city thanks to a confused cab driver, it is evident that there is money here, and lots of it.

Some say the cost of living in Shanghai is on par with the Bay Area of Northern California; I find that hard to believe, given what I’ve learned in the week I’ve been in China. But I’m sure it is more expensive than Beijing — you can tell just by looking. Oh, the miles and miles of tenements are here, sprawling in every direction, but most of them are new, and interspersed with gleaming, brand new office towers and business hotels.

Even the taxicabs are new. And you still have plenty of people on bicycles, but not as many as you see in Beijing. And the private cars are nice and bigger than you see on a freeway in Beijing, that’s for sure.

It’s as if this notorious port city built by laowai for laowai (laowai being Caucasian foreigners) woke up when China opened up, dusted itself off, and partied like it was 1899. And it still is. Imperialism still runs Shanghai; it’s just a different kind this time around. The Bund — the French colonial section of Shanghai — is surrounded by office towers proclaiming companies that call Japan, Europe and the United States home — and a few Chinese companies too, which is also telling of how things are different. These were parts of Shanghai that were off limits to Chinese once upon a time, in its colonial days.

But this is still a foreigner-friendly city; it’s definitely China a la laowai. I wasn’t here 20 minutes and I saw a Taco Bell Grande — which is, I can’t believe I’m writing this — an upscale version of Taco Bell. I swear I’m not making that up.

Wow, I just went to post this on the site, and I glanced at the comments on the previous blog entry, “How Much is that Doggy in the Window?” And there’s a suggestion about Taco Bell Grande for Mexican food …

I want to introduce my interpreter, Tony, to Mexican food — but I don’t think I can introduce him to Taco Bell. Why is it that with all the wonderful things American culture has to offer, the rest of the world latches onto fast food and inane television? I’ve already heard from two different Chinese people, who have never left this country, how much they love the TV show “Friends.”

At least the Chinese appreciate some of the finer things to come from U.S. shores, such as the Cincinnati Symphony Orchestra. I’ve heard from several different Chinese citizens who bring up the symphony when I mention I was born and raised in Cincinnati. That almost makes up for “Friends.”

Jeff’s China Travel Tips!

And now, ladies and gentlemen, I am proud to bring you the premier of a brand new feature here on Jeff’s Silicon Road blog: Jeff’s China Travel Tips!

I was planning on saving this up as an entire blog topic, but then I thought it would be better to just tack them onto blog entries as they occur to me. So here’s a few that I have whirling around in my head:

  1. Staying in Beijing? For God’s sake, pick a hotel near a subway station! At least make sure your hotel is more than a year old; if it’s not, NONE of the taxi drivers in town will know where the hell your hotel is. Trust me, I know what of I speak.
  2. Coming on business for more than a few days? Be prepared for mundane tasks to take a long time, like printing an expense report and mailing it back to the states. If you’re smart, unlike me, you’ll have someone send airmail envelopes from China ahead of time. Find a hotel between a subway station and a post office, like the Holiday Inn downtown in Shanghai, and you will be in heaven.
  3. If you’re like me and are in the habit of drinking at least a gallon — really — of water a day, bring your backpacking water purifier, or else remember to buy a lot of bottled water; drinking tap water here without boiling it is a no-no. Even says so in the hotel bathrooms.
  4. Electronic News Travels to China

  5. Don’t bother with the VIP tickets on the Shanghai airport maglev, unless it’s really busy or you have a lot of luggage. Yes, they are not that expensive by Western business expense account standards, 100 yuan, or about 12 bucks, but you’re only on the train all of five minutes. Regular tickets are only 50 yuan; save the other 50 yuan for cab rides — the cabs in China are dirt cheap, compared to the United States.

Editor’s Note: As explained at length elsewhere on this site, this is a blog entry of mine that originally appeared on the now-defunct Electronic News’ website, which is long gone. While its former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge), as far as I know, this blog content isn’t hosted anywhere else on the Internet, hence my reproduction here.

Original Comments

Editor’s Note (slight return): D’oh! Once again, when I downloaded the Silicon Road microsite, Adobe Acrobat didn’t manage to grab the 13 comments that were attached to this blog entry – it grabbed more than a thousand other pages (most of them empty; I guess it’s an inexact science), but not that one. Damn.

China Is Worried About China

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 RoadBEIJING — There is no end of conjecture in the semiconductor industry as to what the rise of China means to the industry as a global whole. It ranges from dire predictions of tremendous overcapacity that will take years to absorb, to ridiculously bullish forecasts of domestic chip demand.

The conjecture isn’t just limited to the chip industry, but involves all sorts of industries, such as agriculture to automobiles, not to mention the economic and political concerns of those in the U.S. and other western governments.

But Chinese officials say that China is not really concerned so much with dominating the semiconductor industry, or anything else, for that matter, as it is with addressing its own internal issues. And one of the ways it sees to address those issues is the continued development of the domestic chip industry.

“It’s a live or die industry,” said Yang Xue Ming, an analyst with the Institute of Chinese Electronic Industry Development, part of the central government’s Ministry of Information Industry. Information technology is a modern engine for China’s economy, just as it is elsewhere in Asia and in the West, he explained, and the IC is in turn the foundation of IT – “without the chips, information technology is just a slogan.”

One of the key ways Yang suggests China will continue to build its domestic chip industry is cooperation, as opposed to domination.

“Cooperation is based on mutual understanding,” said Yang. “The deeper the understanding,” he added, “the more successful the cooperation will be.” And he sees many opportunities for Sino-U.S. cooperation.

Yang, who spent some 20 years as an engineer in China’s chip industry before getting involved in management and government, is quick to point out this is his own opinion, and not necessarily a reflection of the official position of the Chinese government. And yet, he notes that the Chinese government has paid special attention to the chip industry, and how it is connected to China’s macroeconomic environment.

Domestic Demand Outstripping Growth

Yang doesn’t see China alone being able to build so many fabs in the next few years that it causes a global capacity glut. Currently China’s fab lines produce approximately $2.2 billion (18 billion yuan), but it wants to triple that capacity by 2008. Factoring in die size shrinks, the transition from smaller wafer sizes to 200mm and 300mm wafers and the process capabilities of domestic chipmakers, this translates into 10 to 15 additional fabs to be built in China over the next three years, according to Yang.

Even with this aggressive expansion, China will still need to import an estimated 70 percent of the chips it will consume. According to Chinese government estimates, the domestic market demand for semiconductors will reach $61.8 billion (500 billion yuan) in 2008, but only $21 billion (170 billion yuan) of those will be produced in domestic fabs; the remainder will come from outside China.

Against that backdrop, he observed that the rise of Japan’s chip industry in the 1980s is completely different from China’s ascension in the semiconductor world. China recognizes that it can’t come close to fulfilling its domestic demand; even so, it recognizes the need to foster a domestic industry, said Yang. Thus, China doesn’t have the ambition to be a leading chip producer in the world, rather it just wants to put a dent in that trade imbalance and fulfill its own needs, or at least part of it.

This has been one of the major drivers behind China’s opening up to foreign investment and privatizing state owned businesses, and its joining the World Trade Organization, he said – the country realizes that if it is going to make strides toward self reliance in the chip industry, it is going to need foreign investment to do so. The chip industry is a global one; no one country can realistically go it alone, and China recognizes that the benefits of global cooperation and participation in the WTO outweigh the deterrents, according to Yang.

In China, prior to 2000, the domestic chip industry was totally supported by the state. But then, the government shifted its stance, determining that it would continue to support domestic R&D efforts, but would encourage private industry, recognizing that it was only through outside investment that China would gain the ability to participate in the global chip industry in a significant way, said Yang.

In short, China recognized that it needed to create an environment via federal policy that attracted both local and foreign capital that would fund China’s development and growing economy, creating local jobs in the process. And it learned this from a nearby neighbor.

“This lesson has been taught by the Taiwanese,” Yang said. “The Taiwanese are very good at this strategy.”

There’s a Reason Its the Capitol

China also realizes that to support its own domestic need for technology, it not only has to take further steps to protect the intellectual property (IP) of foreign companies investing in China, but that it has to begin to develop its own IP as well. And while it looks outside of China to investors and companies to help it foster that IP, those looking in might not be seeing the whole picture, suggested Liang Sheng. In fact, some executives may be downright shortsighted.

Liang is the section chief of the Department of Information Industry of the Beijing Municipal Government. When most people in the West think of the chip industry in China, the first word to come to mind is Shanghai. And if cheap labor costs and manufacturing are all that a company is looking for in China, then Shanghai is the place to be, Liang acknowledged.

But if companies want to get in on the ground floor, they need to be plugged into China’s traditional capital: Beijing.

“Here in Beijing, we have the IP,” said Liang, observing that China’s Semiconductor Manufacturing International Corp. (SMIC), while having its principal production fabs in Shanghai, has its headquarters and is building its 300mm fab in Beijing.

Of the 400 design houses in China, 85 are in Beijing; out of the 16 design houses that achieve more than $100 million in annual revenue, nine are in Beijing, Liang noted. And China’s only EDA company, CEC Huada, also resides in Beijing. The bulk of China’s technical universities are also here.

Electronic News Travels to China“The Chinese market is so big, it grows so quickly, it is impossible to depend on imports – we need our own technology, our own standards,” he said. Which is why he wants foreign investors and foreign chipmakers to be aware of Beijing, and what it has to offer in terms of local IP opportunity, as opposed to just cheap manufacturing.

“If you want to do something in this area, you have to cooperate with Beijing,” Liang said.