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A managed slowdown in the mainland economy and a softening global chip industry are unlikely to take the steam out of China's semiconductor market.
Although the central government has tightened lending to sectors such as real estate and certain commodities, it continues to see the electronics business as a pillar of economic growth. Semiconductors are a key component and the brain of most electronics.
China exported electronic products and machinery worth more than US$113 billion in the first five months of the year, up 44.2 per cent from the previous year and representing  more than 55 per cent of its total exports.
The trend should continue as China is still able to play the low-cost manufacturing card. 
In addition, the next semiconductor downturn will be  induced by an oversupply of devices rather than  a slowdown of  consumption. 
As such, the number of semiconductors used in China's electronic industry should continue to increase.
Looking beyond 2008, however, China needs to quickly  develop policies that will help sell its 'own' electronic products in other markets. 
In recent years, the country has pursued a few new standards such as TD-SCDMA, but the real market for these technologies is in question.
A fundamental problem is that China has not yet co-operated closely with major international standards committees, coming up with standards that are different from the world's benchmarks on various occasions.
While one can argue that the country has a large domestic market and can force local consumers to use its standards, as a member of the World Trade Organisation it has to meet the world's needs eventually. 
Electronics products that use proprietary standards will have a limited market, as seen with CMDA in the United States and the Personal Handyphone System (PHS) in Japan. 
It is imperative that China develop  technologies  that allow it to be competitive. 
The problem with this strategy is that  most Chinese firms do not understand the importance of intellectual property protection.
China cannot wait any longer to solve this problem as it will not be able to rely on its low-cost advantage for too much longer, especially if members of Asean (Association of Southeast Asian Nations) or African countries decide to join the game.
 Earlier this year, Vice-Premier Wu Yi  assured the world that China would strengthen its efforts to protect intellectual property rights by  defining legal interpretations and standards, enforcing more severe penalties for  infringement, expanding market entry for legal products  and implementing education policies. 
 While the results cannot be seen immediately as the society needs time to understand the importance of such policies, foreign confidence will increase slowly. 
This will prompt more foreign firms to collaborate with mainland companies in technology research and development. 
Another problem that semiconductor companies on the mainland face is lack of recognition from customers. Everyone has heard of Intel or Samsung, but how many people know about Foshan Blue Rocket Electronics  or Hangzhou Silan Microelectronics?  
 The efforts many Chinese semiconductor companies put into branding and marketing are abysmal, with most being invisible to potential customers.   
To expand their businesses, Chinese semiconductor companies need to focus not only on technological advancement but also on developing marketing strategies that will win them customers abroad. 
China imports more than 80 per cent of the semiconductors it needs. 
Even with a number of new manufacturing facilities being built around the Yangtze Delta in recent years, the proportion has not improved dramatically.  
What China needs to do is to continue attracting foreign investment in this area by offering  tax benefits, land incentives or research funds to  companies that invest in semiconductor plants. Furthermore, Chinese companies need to develop stronger relationships with foreign partners.
 These relationships should not be limited  to  sales and distribution, but should also extend to  product design.  
While the process will take more than 10 to 15 years,  it will in the end ensure that the mainland has its own pool of talent, and will no longer need  to depend heavily on foreign-made semiconductors.


Dorothy Lai is a former semiconductor analyst for Gartner.



Global focus vital to health of China's electronics industry