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11 Jan 2006
In mid-2005 the UK's DTI Global Watch Service sent a fact-finding mission to China to study its capabilities in electronics and photonics manufacturing. This is what they found.
The Chinese government sees photonics as one of the key industries to drive China's economic and technology growth in the 21st century. Over the past decade China has developed a comprehensive manufacturing base in the sector, which is especially strong in the areas of fibre-optic communications and the assembly of optoelectronic modules.
The country has a strong indigenous technology base in telecommunications developed through home-grown businesses and joint-venture companies. Domestic companies, such as the telecom equipment makers FiberHome, ZTE and Huawei, have grown to become large, successful firms with an increasing international focus. The latter recently hit the headlines with the news that it had won a contract to supply British Telecom (BT) with its 21st-century network. One driver for the Chinese telecommunications industry is the Olympic Games, to be held in Beijing in 2008. As part of the games, Beijing is installing a significant new telecommunications network, which is driving demand for telecommunications equipment within China.
The key to the success of these companies is a competent and low-cost supply base, China generates 300,000 graduates per year and the minimum wage for factory workers is typically less than £50 (€72) per month.
China has already become the factory of the world for electronics. It is estimated that by 2007 it will manufacture goods worth $270 bn (€220 bn) - 20% of the world's output. It is now striving to establish a similar dominance in the field of optoelectronics. The high-tech economy is being driven by three major economic zones on the east coast. These are:
•Pan Pearl River Delta (Hong Kong and the surrounding area);
•Yangtse River Delta (Shanghai and the surrounding area);
•Bohai (around Beijing).
Between them they have a population of 1.3 bn people and account for a GDP of more than $2000 bn as well as 90% of China's economic growth. The Guangdong province alone accounts for 30% of China's total exports and features more than 60,000 Hong Kong-owned firms - 40% of which are involved in electronic goods manufacture.
Optoelectronic and LED devices
Optoelectronics has been designated as one of the top-ten emerging industries by the Chinese government, and the government's high-tech plan "863/973" provides strong support to the photonics industry. The goal is to keep China abreast of the latest development in the field, achieve groundbreaking results, alleviate economic bottlenecks and establish a score of industrial bases for sustainable development. For example, in Wuhan a total of $2.9 bn will be invested during the tenth five-year plan to set up an industrial park covering 50 km2. This features a national, key optoelectronics lab with funding of 160 m RMB (€16.3 m) for the building alone.
The government has initiated numerous incentive policies to promote the industry, offering tax breaks, low-cost loans and other incentives. It is promoting special high-technology regions in order to attract major photonic corporations to invest and settle in these areas.
Many major cities, such as Wuhan, Shenzhen and Shanghai, have energetically promoted the industry and created "optical valleys". Local governments also offer support to industry, accelerating the pace of infrastructure development and attracting foreign investment into China.
China is especially strong in the design and manufacture of passive components and can already provide 80% of its domestic needs. However, it is lacking the know-how and capability in the manufacture of optoelectronic chips and active components, such as semiconductor lasers, modulators and light-emitting diodes (LEDs).
Most active-component manufacturers in China are not vertically integrated; they source their semiconductor chips from overseas, especially from companies in Taiwan, South Korea, Japan and the US. The risk-averse attitude of many Chinese companies has so far restricted investment in internal chip fabs. They correctly perceive optoelectronic chip manufacture as a higher-risk area requiring substantial capital investment and highly skilled engineering staff. There are strong indications that this situation will change.
The Chinese government has identified this as a strategic weakness, and research activities are under way to develop an indigenous supply of chips.
The Chinese government sees LED manufacturing as a key part of the country's future, as its rapid economic expansion puts an increasing strain on energy resources. China has been using funds to build up both a domestic market for LEDs and a manufacturing base to meet future anticipated demands.
There are many companies in China (mainly in Shenzhen) making visible LEDs for display, lighting, signs, etc. In many Chinese cities, traffic-lights are already manufactured using LEDs. Companies such as Fangda Group are starting to develop gallium nitride (GaN)-based LEDs for applications such as white-light sources and ultraviolet (UV) light sources for compact discs (CDs) and DVDs. There are already a number of reactors for LED production in China.
LED supply chain
The current problem for LED chip manufacture in China is the lack of a complete supply and support chain for the growth equipment and the lack of Chinese intellectual property in this area. China currently uses low-cost manufacturing to gain entry into LED markets. About 10% of LED chips are currently made in China while 90% are sourced from Taiwan, Japan, the US, etc.
Many companies either outsource their optical structure growth or purchase active components from foreign suppliers. However, a few companies and universities have recently obtained metallo-organic chemical vapour deposition (MOCVD) and molecular beam epitaxy (MBE) equipment with the aim of developing the technology in China. Work appears to be aimed at both LED growth and manufacture as well as developing devices for telecommunication.
There appears to be significant government support for telecommunication laser development. For most active components, such as semiconductor lasers, LEDs and APDs (avalanche photodiodes), optical structures need to be grown onto a wafer using MOCVD or MBE processes. These are specialized and highly skilled operations depending on key individuals. The cost of entry into this technology is high - MOCVD and MBE equipment costs around £1 m and has high associated maintenance and running costs. Chinese universities are working in this area, as are a number of indigenous spin-out companies.
Ultimate ambitions
The aim of most of the Chinese companies is to be a vertically integrated supplier i.e. bring all of the component supply in house to minimize cost. However, the capital cost of the growth equipment is limiting development of this industry in China.
In general, for the very-high-technology end of the photonics market, Chinese companies are about five years behind UK companies, especially in active components. However, they are catching up fast and significant government resources are being invested in this technology.
Traditionally, the benefits offered by China's low-cost business model have encouraged companies to concentrate on manufacturing passive components. These devices have been labour intensive to produce and are at the lower technology end of the market. Chinese companies are now moving into the manufacture of higher-value active components and are improving quality to access international markets.
For more information
This article is based on a report produced from a UK Department of Trade and Industry Global Watch Scoping Mission to China in June 2005 that was organized by EPPIC Faraday.
www.globalwatchservice.com/missions.
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