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.

Furthermore, 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.