Electronics

Since the implementation of the Regional Comprehensive Economic Partnership Agreement (RCEP), the integrated circuit industry has repeatedly set off waves in this blue sea of cooperation. As the world's fastest growing integrated circuit market, how should China act in the face of this all-core development opportunity?

Speaking of integrated circuits, many people may feel strange, but in fact, they are closely related to our lives. It exists in everything from meteorological satellites and rockets to mobile phones, computers, and televisions.

And such a common integrated circuit has always been the focus of international cooperation. Since the implementation of the Regional Comprehensive Economic Partnership Agreement (RCEP), the integrated circuit industry has repeatedly set off waves in this blue sea of cooperation. As the world's fastest growing integrated circuit market, how should China act in the face of this all-core development opportunity?

The Course of "Core" Road in China

Integrated circuit refers to the integration of a certain number of electronic components into circuits with specific functions through semiconductor processes. The upstream of its industrial chain is mainly chip material and equipment manufacturing enterprises, while the midstream is integrated circuit design, manufacturing, and packaging testing. The downstream is the application field of products such as computers and network communications. Since integrated circuits are packaged into chips, we often equate them with each other.

Although China's integrated circuit industry started late, it has strong resilience. After 20 years of rapid development, it has formed a group of well-known enterprises such as Huawei Hisense, Ziguang Group, Changdian Technology, and has leapt into the world's fastest growing integrated circuit market. According to the Huacheng Import and Export Data Observation Report, Xu Xiaolan, Vice Minister of the Ministry of Industry and Information Technology of China, pointed out, "In 2021, China's integrated circuit industry sales exceeded a trillion yuan for the first time, with a compound growth rate of 17% from 2018 to 2021, which is more than three times the global growth rate over the same period."

After years of development, China's integrated circuit industry is also constantly maturing and shaping. At present, the industrial cluster distribution has initially formed an industrial spatial pattern with three core regions, namely, the Yangtze River Delta, the Pearl River Delta, and the Bohai Rim. Among them, the Yangtze River Delta region has become the region with the strongest foundation and the most advanced technology in China's integrated circuit industry. The industrial chain of design, manufacturing, packaging, testing, equipment, materials, and other industries has developed in an all-round manner, accounting for half of the country's industrial scale.

In addition, the entire integrated circuit industry has developed so far and has become one of the most internationalized industries in the world. Therefore, in addition to deeply exploring the domestic integrated circuit industry market, China is also constantly looking abroad. According to Huacheng Import and Export Data Observation, long before the RCEP came into effect, China had close trade relations with RCEP member countries in the field of integrated circuits, especially with Malaysia, Vietnam, and Singapore among ASEAN countries, as well as Japan and South Korea. According to Huacheng Import and Export Data Observation, in 2021, the total import and export trade of integrated circuits between China and South Korea, Malaysia, Vietnam, Japan, and Singapore was approximately 1433.798 billion yuan, accounting for 92.39% of the total import and export trade of integrated circuits between China and RCEP member countries.

However, although the import and export volume of integrated circuits in China has steadily increased in recent years, there is still a large trade deficit. For example, from January to May 2021 alone, the trade deficit of China's integrated circuit industry reached US $105.201 billion.

Industry insiders pointed out that the main reason for this situation is determined by China's main industrial model of OEM. In addition, today's digital and intelligent driving demand for upstream semiconductors, repeated global epidemics, and trade frictions between China and the United States have exacerbated global IC production capacity constraints and supply shortages, driving high growth in China's integrated circuit imports and widening the deficit.

RCEP "Core" Opportunities

However, since the entry into force of RCEP, the vitality of intradomain integrated circuit import and export trade has been further released, providing a more convenient and efficient environment for investment and technology exchange. In this situation, the difficulties faced by China's integrated circuit industry are expected to be resolved, and may bring unprecedented opportunities for the development of "core".

First of all, the reduction of tariffs will benefit the import and export business of Chinese enterprises and have a significant impact on import and export trade. According to the RCEP agreement, many semiconductor materials and equipment that originally had a tariff of around 8% will be reduced to zero within the first year after the agreement enters into force. The reduction in tariffs will directly benefit the upstream of the industry, reducing the import prices of materials and equipment, and thereby benefiting the midstream sealing and testing field. This will greatly reduce the production costs of Chinese enterprises, and facilitate the "introduction" of midstream sealing and testing products and the "going global" of downstream application products.

Secondly, the origin accumulation rule is also one of the most important economic and trade rules in the RCEP agreement. This rule allows enterprises to use materials originating in other member countries when producing, which can be regarded as locally originating materials, making it easier to meet the threshold of enjoying tariff preferences. Yuan Haijun, the technical director of the manufacturing center of Ningbo Jiangfeng Electronic Materials Co., Ltd., said, "If raw materials are imported from abroad, it is difficult to achieve a 40% value-added in domestic processing. However, through the RCEP origin accumulation rule, our customers can enjoy preferential tax rates, which will greatly promote the export of our target products in Southeast Asia."

In addition to reducing costs, there are many provisions in the RCEP agreement that also facilitate the import and export of integrated circuits. For example, temporary entry clauses improve the efficiency of temporary entry within the domain and reduce the tariffs and time costs incurred by temporary entry of integrated circuit raw materials and equipment during cross-border circulation. In addition, in order to promote investment among member countries, RCEP also provides convenient procedures, supporting legal advice, and dispute complaint mechanisms for integrated circuit manufacturers in the region, providing a good environment for the international operation and management of manufacturers.

In addition, RCEP also ensures the healthy development of the integrated circuit industry from various aspects. On the one hand, the temporary movement of natural persons clause will promote the flow of talent and technological exchange within the region, and contribute to talent cultivation and technological innovation; On the other hand, the protection of intellectual property rights will also promote orderly competition in key technology fields, help member countries with integrated circuit technology advantages protect their own rights and interests when providing technology output to enterprises in other member countries, and achieve a win-win situation in the process of intellectual property dissemination.

It can be seen that the effective implementation of RCEP greatly reduces the production cost of integrated circuits, which will help to achieve economies of scale. In addition, the multi-party safeguard clause has effectively promoted intraregional trade cooperation, conducive to the formation of a stable integrated circuit industry chain, and is expected to address technical blockade and other challenges through technical cooperation.

"Core" opportunities, core challenges

Although RCEP has brought a "core" opportunity to China's integrated circuit industry, how to turn the opportunity into an advantage and address the challenges that may be encountered on the way has become a question that China needs to carefully consider at present.

The key to truly landing opportunities is to start from the industrial chain. The middle reaches of the integrated circuit industry chain mainly focus on integrated circuit design, with high requirements for technological research and development strength. Currently, the global integrated circuit design is still dominated by the United States, and Japan, South Korea, and Singapore within the region also have strong competitiveness.

However, the upper and middle reaches of the industrial chain are the main driving forces of RCEP member countries, which can provide important ideas for China's future development layout. For example, the upstream material industry is dominated by Japanese and American companies, while the midstream packaging and testing industry is dominated by China, Singapore, Malaysia, and Vietnam. Chinese integrated circuit enterprises can "learn from each other's strengths and complement each other's weaknesses" among member countries, maximizing the advantages of industrial linkage, Huacheng Import and Export Data Observation reported.

On the one hand, in cooperation with the midstream of the industrial chain, China can expand its sales by leveraging the market recognition of packaging and testing products of leading midstream packaging and testing companies such as Unison Malaysia in other countries, or use the advantages of Singapore United Technologies in the field of integrated circuit packaging and testing to integrate resources in the upstream and midstream of integrated circuits using the principle of origin accumulation, enhance its influence in the global automotive chip industry, thereby reducing production costs, Form a coordinated development of all links in the integrated circuit industry.

On the other hand, in the upstream field of cooperation, the RCEP agreement will further release the high-tech value advantages of Japan and South Korea in the integrated circuit industry. After the provisions on temporary movement of natural persons and intellectual property rights come into effect, China can create more convenient and reliable conditions for technical talents from leading Japanese and Korean enterprises to come to China for short-term cooperation and exchange. At the same time, it can also take advantage of the advantages and resource endowments of the three countries' integrated circuit industry to form a situation of collaborative cooperation in the integrated circuit industry of China, Japan, and South Korea, and to some extent alleviate the technical blockade imposed by the United States on Chinese enterprises.

But at the same time, the challenges of "core" are gradually increasing. Under the influence of global epidemic and other issues, the global "broken core" dilemma occurs frequently, which has a serious impact on China's integrated circuit industry chain. Therefore, in order to cope with many force majeure, China should make good use of RCEP, optimize industrial layout, and enhance the resilience of the supply chain and industrial chain.

However, the key for China's integrated circuit industry to truly overtake on curves is to solve the "neck" technical problem. While relying on RCEP to address the pressure of technological blockade, China should also deepen regional technical cooperation and enhance its core competitiveness in order to truly turn "core" opportunities into "core" strength. Huacheng Import and Export Data Observation Report.